22 APV MVP GmbH has produced football supplies for more than 20 years. The company currently has a debt–equity ratio of 50 per cent and is in the 29.8 per cent tax bracket. The required return on the firm’s levered equity is 16 per cent. MVP is planning to expand its production capacity. The equipment to be purchased is expected to generate the following unlevered cash flows:

Year Cash Flow (€)

0 −24,000,000 1 8,000,000 2 13,000,000 3 10,000,000 The company has arranged a €12 million debt issue to partially finance the expansion. Under the loan, the company would pay interest of 9 per cent at the end of each year on the outstanding balance at the beginning of the year. The company would also make year-end principal payments of €4 million per year, completely retiring the issue by the end of the third year. Using the adjusted present value method, should the company proceed with the expansion?