2. (12 points) The 4year project requires equipment that costs $100,000. K" = 6%, K = rWACC = 5.5%. Tax rate is 34%. If undertaken, the shareholders will borrow $30,000 at 4% with an interestonly loan with a maturity of 4 years and annual interest payments. There will be a pretax salvage value of $10,000. The equipment will be depreciated straightline over the 4-year life of the project. There are no other startup costs at year 0. During years 1 through 4, the rm will sell 35,000 units of product at $3.5; variable costs are $2.5. There are no xed costs. 7;: 'f'debt = 4%, K11, = 6%, K = TWACC = 5.5% I, = 30,000 x 4% = 1,200 D: = (100, 000 10, 000) /4 = 22, 500 T 2 Tax rate = 34% CFO = $100, 000 05.3 = $30, 750 = 35, 000 x (1 0.34) + $22, 500 x 0.34 or "#1 T '2" 13 T 13 CF4 = $37, 350 = $30, 750 + $10, 000 x (1 0.34) (a) What is the NPV of the project using the WACC methodology? (b) What is the PV of aftertax operating CF of the project using the APV methodology? (0) What is the PV of depreciation tax shield using the APV methodology? (d) What is the PV of interest tax shield using the APV methodology? (e) What is the NPV of the project using the APV methodology? (f) What is the NPV of the project using the APV methodology if the borrowing rate is 6%