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Digital Organics (DO) has the opportunity to invest $0.93 million now ( t = 0) and expects after-tax returns of $530,000 in t = 1
Digital Organics (DO) has the opportunity to invest $0.93 million now (t = 0) and expects after-tax returns of $530,000 in t = 1 and $630,000 in t = 2. The project will last for two years only. The appropriate cost of capital is 14% with all-equity financing, the borrowing rate is 10%, and DO will borrow $230,000 against the project. This debt must be repaid in two equal installments. Assume debt tax shields have a net value of $0.25 per dollar of interest paid. Calculate the project |
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