Question 5

Bore Industries is considering investing $55 million into a new project. The projected free cash flows from the project are shown in the table below. In order to finance the project, Bore will issue a 5-year bond with a face value of $80 million that will be repaid in one bullet payment at the end of five years (as shown in the table below). The cost of debt on the bond is 4.5%, Bore's unlevered cost of capital is 12%, and its marginal corporate tax rate is 25%. Using the APV method, what is the NPV of the project? (Select one)

		$31.04 million
		$27.09 million
		$82.1 million
		$87 million

Free Cash Flows for New Project (in $ million) Year 0 1 2 3 FCF (in $ millions) (55.00) 15.00 30.00 50.00 Debt Level in $ millions) 80 80 4 10.00 80 5 5.00 0 80 80 Free Cash Flows for New Project (in $ million) Year 0 1 2 3 FCF (in $ millions) (55.00) 15.00 30.00 50.00 Debt Level in $ millions) 80 80 4 10.00 80 5 5.00 0 80 80