A project with an initial investment for the project is $2.5 million has perpetual cash inflows of $0.3 million annually beginning in one year.
The opportunity cost of capital for the project is 12%.
The project supports borrowing of $1 million.
The marginal tax rate is 35%.
The borrowing cost for $1 million of debt is 6%.
A. With all equity financing, what is the net present value of the project?
B. If the D/V ratio is constant, what is the present value of the interest tax shields supported by the project?
C. If the D/V ratio is constant, what is the APV of the project?
D. If the debt is fixed, what is the present value of the interest tax shields supported by the project?
E. If the debt is fixed, what is the APV of the project?