Consider a project to produce solar water heaters. It requires a $10 million investment and offers a level after-tax cash flow of $1.59 million per year for 10 years. The opportunity cost of capital is 9.75%, which reflects the project’s business risk.

a. Suppose the project is financed with $5 million of debt and $5 million of equity. The interest rate is 5.75% and the marginal tax rate is 35%. The debt will be paid off in equal annual installments over the project’s 10-year life. Calculate APV. (Do not round intermediate calculations. Roundup your answer to the nearest whole dollar.)

b. If the firm incurs issue costs of $250,000 to raise the $5 million of required equity. Calculate APV. (Do not round intermediate calculations. Roundup your answer to the nearest whole dollar.)