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 r D  .10, and the tax shield per dollar of interest is T c  .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?

AppendixLO1