Your firm wants to diversify with a new product line. The project requires an initial investment of $8,000,000 and will provide $1,890,000 in unlevered after-tax cash flows at the end of each year for 10 years. Debt (bonds) of $4,000,000 will be issued (This will not change the firm's overall debt-equity ratio). Assume the 10-year debt was issued with a coupon rate equal to the debt yield rate (so the coupon = yield). Assume the firm's effective tax rate is 32.35%, risk-free rate is 3.26%, coupon is 4.50% and a 6% market premium to
a) Find the value using APV (adjusted present value). You will need to estimate the unlevered cost of capital.
b) Find the value using FTE (flow to equity).