You are valuing a project for Gila Corporation using the APV method. You already found the net present value of free cash flows from the project (discounted at the appropriate cost of equity) to be $420,000. The only important side effect of financing is the present value of interest tax shields. The project will be partially financed by a constant $1 million in debt over the life of the project, which is three years. Gila's tax rate is 45 percent, and the current interest rate applicable for the project's debt is 7 percent (assume this rate is also appropriate for discounting the interest tax shields). Assuming tax shields are realized at the end of each year, what is the APV of the project? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar. APV
You are valuing a project for Gila Corporation using the APV method. You already found the net present value of free cash flows from the project (discounted at the appropriate cost of equity) to be $420,000. The only important side effect of financing is the present value of interest tax shields. The project will be partially financed by a constant $1 million in debt over the life of the project, which is three years. Gila's tax rate is 45 percent, and the current interest rate applicable for the project's debt is 7 percent (assume this rate is also appropriate for discounting the interest tax shields). Assuming tax shields are realized at the end of each year, what is the APV of the project? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar. APV
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:You are valuing a project for Gila Corporation using the APV method. You already found the net present value of free cash flows from
the project (discounted at the appropriate cost of equity) to be $420,000. The only important side effect of financing is the present
value of interest tax shields. The project will be partially financed by a constant $1 million in debt over the life of the project, which is
three years. Gila's tax rate is 45 percent, and the current interest rate applicable for the project's debt is 7 percent (assume this rate is
also appropriate for discounting the interest tax shields). Assuming tax shields are realized at the end of each year, what is the APV of
the project?
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar.
APV
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