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ABC Corp has the opportunity to invest $1 million now (t=0) and expects after-tax returns of $600,000 in t=1 and $700,000 in t=2. The project will last for two years. The appropriate cost of capital is 12% with all-equity financing, the borrowing rate is 8%, and ABC Corp will borrow $300,000 against the project. This debt must be repaid in two equal installments. Assume debt tax shields have a net value of $0.30 per dollar of interest paid. Calculate the project’s APV.

Financial Management, Finance

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