20. APV (S18-4) Consider a project to produce solar water heaters. It requires a $10 million investment and offers a level after-tax cash flow of $1.75 million per year for 10 years. The opportunity cost of capital is 12%, which reflects the project’s business risk.

a. Suppose the project is financed with $5 million of debt and $5 million of equity. The interest rate is 8% and the marginal tax rate is 21%. An equal amount of the debt will be repaid in each year of the project’s life. Calculate APV.