Northern Light Corp. is evaluating a potential investment project which costs $1,000 today and is expected to produce free cash flows of $60 at the end of each year in perpetuity. The

firm uses a debt-equity ratio of 2 to finance its existing operations. This new project would be of similar risk as the firms existing operations and would be financed in the same way as the firms existing operations. Northern Light Corp. faces a corporate tax rate of 40%. The firms equity beta is 1.2, and its debt beta is 0.2. The expected return on the market portfolio is 8% and the risk-free rate of interest is 3%.

(a) Use the WACC approach to determine the NPV of the project.

(b) Show how you can use the APV approach to calculate the same total project value as for the WACC approach in part (a).