Question: Sunny Corp. is looking into building a project that has the following characteristics:
- it is a new area of business for Sunny Corp.
- upfront cost is $1,000,000
- $100,000 of revenue for fifteen years comes from the project
- A $1,250,000 loan is available and it has a 5% interest rate. The loan will be paid off in ten years, in one lump sum
Required: State if Sunny should pursue this new investment opportunity based on WACC and APV. Is APV or NPV best used in this situation?