Consider a project lasting one year only. The initial outlay is $1,000 and the expected inflow is

Question:

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 = .35.

a. What is the project’s base-case NPV?

b. What is its APV if the firm borrows 30% of the project’s required investment?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...