Problemdigital organics do has the opportunity to invest, Ask an Expert

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Problem:

Digital Organics (DO) has the opportunity to invest $0.98 million now (t = 0) and expects after-tax returns of $580,000 in t = 1 and $680,000 in t = 2. The project will last for two years only. The appropriate cost of capital is 14% with all-equity financing, the borrowing rate is 10%, and DO will borrow $280,000 against the project. This debt must be repaid in two equal installments. Assume debt tax shields have a net value of $0.25 per dollar of interest paid.

Required:

Question: Calculate the project's APV.

Describe in detail and also show all workings.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91147441

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