i = rdebt = 10% OCF0 = $100,000 Ku = rassets = 15% OCF1-4 = $39,800 = 25,000 ($5 $3) (1 0.34) + $20,000 0.34 Kl = requity = 24.9% OCF5 = $43,100 = $39,800 + $5,000 (1 0.34) K = rWACC = 11.20% Tax rate = 34% Debt-to-equity ratio = 3 Risk-free rate = 2%

The 5-year project requires equipment that costs $100,000. If undertaken, the shareholders will contribute $25,000 cash and borrow $75,000 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 $5,000. There are no other start-up costs at year 0. During years 1 through 5, the firm will sell 25,000 units of product at $5; variable costs are $3; there are no fixed costs. When using the APV methodology, what is the NPV of the interest tax shield?

When using the APV methodology, what is the NPV of the interest tax shield?

	A.	$9,666.51
	B.	$12,019.32
	C.	$9,377.31
	D.	$7,000.73