Gemini plc, an all-equity firm, is considering a €2.4 million investment that will be depreciated according to 25 per cent reducing balances. At the end of its 4-year life, the investment will be sold for its residual value. The project is expected to generate earnings before taxes and depreciation of €850,000 per year for 4 years. The investment will not change the risk level of the firm. The company can obtain a 4-year, 9.5 per cent loan to finance the project from a local bank. All principal will be repaid in one balloon payment at the end of the fourth year. The bank will charge the firm €24,000 in flotation fees, which will be amortized over the 4-year life of the loan. If the company financed the project entirely with equity, the firm’s cost of capital would be 13 per cent. The corporate tax rate is 12.5 per cent.

Using the adjusted present value method, determine whether the company should undertake the project.