A project costs $1 million and has a base-case NPV of exactly zero (NPV = 0). What

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A project costs $1 million and has a base-case NPV of exactly zero (NPV = 0). What is the project’s APV in the following cases?

a. If the firm invests, it has to raise $500,000 by a stock issue. Issue costs are 15% of net proceeds.

b. If the firm invests, its debt capacity increases by $500,000. The present value of interest tax shields on this debt is $76,000.

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Principles of Corporate Finance

ISBN: 978-0077404895

10th Edition

Authors: Richard A. Brealey, Stewart C. Myers, Franklin Allen

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Question Posted: Dec 31, 2012 09:45 AM

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A project costs $1 million and has a base-case NPV of exactly zero (NPV = 0). What

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APV 5 basecase NPV PV f...View the full answer

Principles of Corporate Finance

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