1. A project is expected to produce a cash flow of 2,250,000 in one year, and the cash flows are expected to grow at 2% rate per year perpetually. To finance the project, the firm issues a debt of $10 million and sells another $10 million worth of equity. Debt is issued with associated flotation costs of $20,000, while the equity has flotation cost of $40,000. The debt has 10% interest and 5 years to maturity, with principal repaid in a lump sum at the end of the fifth year. The equity has a required return of 12%. Both flotation costs can be amortized over a period of 5 years.
   1. If the firm's tax rate is 20%, calculate the project's APV.
   2. D

      you may (or may not) need this formula to obtain your discount rate for some of your analysis.

      Re=Ru+BE1-TRu-RB

      In the above, Ru is the unlevered cost of capital, which is 10% in this case; RB is the cost of debt, and T is tax rate. B is the value of debt, and E is the market value of equity.

      iscuss whether you would expect WACC method to give you a different answer, and if yes, then why.