ABC Automotives has a marginal tax rate of 25%, the cost of equity is 15%, pretax cost of debt is 5%. Given the book and market-value balance sheets,

ABC Automotives (book values, $ million)

Asset Value $5,000	Debt $ 2,500 Equity $ 2,500
$5,000
	$ 5,000

ABC Automotives (Market values, $ million)

Asset Value $7,500	Debt $ 2,500 Equity $ 5,000
$7,500
	$ 7,500

ABC Automotives wants to invest in a machine with cash flows of $3 million per year pretax, which will continue indefinitely. What is the value of the machine given ABC Automotives has a marginal tax rate of 30%, cost of equity is 12%, and the pretax cost of debt is 5%. Given the book and market-value balance sheets,

ABC Automotives (book values, $ million)

Asset Value $5,000	Debt $ 2,500 Equity $ 2,500
$5,000
	$ 5,000

ABC Automotives (Market values, $ million)

Asset Value $7,500	Debt $ 2,500 Equity $ 5,000
$7,500
	$ 7,500

ABC Automotives wants to invest in machine with cash flows of $2 million per year pretax and it continues indefinitely. What is value of machine, given an initial investment of $15 million. The machine cost of $15 million will be financed with $6 million of new debt initially. Compute the value of the machine using the APV method, assuming ABC Automotives will maintain a constant debt-equity ratio for this investment.

Also, suppose that ABC Automotives wants to keep the project debt fixed at 6 million. In this case we assume that the risk of interest shields is the same as the risk of the debt and we discount at the 6% rate on debt. Now compute the value of the machine using the APV method.