Digital Organics (DO) has the opportunity to invest $1.06 million now (t = 0) and expects after-tax returns of $660,000 in t = 1 and $760,000 in t= 2. The project will last for two years only. The appropriate cost of capital is 13% with all-equity financing, the borrowing rate is 9%, and DO will borrow $360,000 against the project. This debt must be repaid in two equal installments of $180,000 each. Assume debt tax shields have a net value of $0.40 per dollar of interest paid. Calculate the project's APV. (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer to the nearest whole number.) Adjusted present value
Digital Organics (DO) has the opportunity to invest $1.06 million now (t = 0) and expects after-tax returns of $660,000 in t = 1 and $760,000 in t= 2. The project will last for two years only. The appropriate cost of capital is 13% with all-equity financing, the borrowing rate is 9%, and DO will borrow $360,000 against the project. This debt must be repaid in two equal installments of $180,000 each. Assume debt tax shields have a net value of $0.40 per dollar of interest paid. Calculate the project's APV. (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer to the nearest whole number.) Adjusted present value
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 22E
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