23. APV and limits on interest tax shields (S18-4) Take another look at the APV calculation for the perpetual crusher project in Section 18-4. This time assume that the corporation investing in the project has hit the 30% constraint on interest deductions as a percentage of EBIT. How does the constraint change the project’s APV?

Notice that the crusher’s pretax cash flow of $1.487 million a year is also its EBIT. The project is perpetual, so there is no depreciation or amortization. Assume for simplicity that the constraint is permanently binding, but that the firm will continue to pay tax at the 21%

statutory rate.