APV (Adjusted Present Value) method

You have a project that costs $60,000 at time 0 and which will then generate after tax cash flows of 10,000 per year for 9 years, followed by a cost of $8,000 in year 10. The cost of equity for your all-equity firms is 8%. The corporate tax rate is 40% and $30,000 of the projects cost could be funded with debt with a yield of 5%.

a. What is the unlevered NPV for this project?

b. What is the value of the yearly interest tax shield if the project is financed with $30,000 in debt?

c. What is the PV of the yearly interest tax shield for the 10 years?

d. What will the adjusted present value (APV) be?