PRIN.OF CORPORATE FINANCE
PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 19, Problem 14PS

APV Consider a project lasting one year only. The initial outlay is $1,000, and the expected inflow is $1,200. The opportunity cost of capital is r = .20. The borrowing rate is rD = .10, and the tax shield per dollar of interest is Tc = .21.

  1. a. What is the project’s base-case NPV?
  2. b. What is its APV if the firm borrows 30% of the project’s required investment?
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