Ellison Corp. is planning a project that will generate after tax cash flows of $300,000 each year for 2 years (year 1 and year2). It will require an initial (i.e. at time 0) investment of $500,000 that will be partly funded by $200,000 of debt. The debt requires an annual (pre-tax) interest payment at 7% (Rb) and is repaid in one payment at the end of year 2 (i.e. $200,000 repaid in year 2). The tax rate is 40% and the unlevered cost of equity (Ro) equals 10%. Calculate APV.

a.$30,786

b.

$100,000

c.

$10,536

d.

$10,125

e.

$20,661