Given Information r (debt) =8%, r(equity)= 20%, Tax rate = 30%, Risk free rate = 2%, Debt to equity ratio= 3

OCFo= -$80,000

OCF1-4= 20,000 x (5-2) x (1-30%) + 16,000 x 30% = 46,800

OCF5 = 46,800+3,200 = 50,000

The 5-year project requires equipment that costs $80,000. If undertaken, the shareholders will contribute $20,000 cash and borrow $60,000 with an

interest-only loan with a maturity of 5 years and annual interest payments. The equipment will be depreciated straight-line to zero over the 5-year life of the

project. There will be a pre-tax salvage value of $3,200. There are no other start-up costs at year 0. During years 1 through 5, the firm will sell 20,000 units of

product at $5; variable costs are $2; there are no fixed costs.

What is the NPV of the project using the WACC methodology? PLEASE EXPLAIN ANSWER

a) $58,028.68

b) $89,613.03

c) $97,108.16

d) $103,155.75

When using the APV methodology, what is the NPV of the depreciation tax shield? PLEASE EXPLAIN ANSWER

a) $32,051.52

b) $25,777.35

c) $19,165.01

d) $97,152.98