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The market value balance sheet and other financial data for Company XXX are listed below. Asset value $1,000,000 Debt $500,000 Equity $500,000 $1,000,000 $1,000,000 6%

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The market value balance sheet and other financial data for Company XXX are listed below. Asset value $1,000,000 Debt $500,000 Equity $500,000 $1,000,000 $1,000,000 6% Cost of debt Cost of equity Marginal tax rate 12% 21% You are the financial manager of company XXX is considering a project that requires $300,000 investment today and expects to generate a perpetual cash flow of $30,000 each year (after-tax). This after-tax cash flow takes no account of interest tax shields on debt supported by the project. Assume no depreciation. The company issues $90,000 debt at 6% interest rate to finance the project and will keep the debt amount fixed once issued. The issue cost of debt is $2,000. You want to calculate APV of the project (keep four decimals including percentage to avoid rounding error) (a). What's cost of capital used to calculate base-case NPV (in %)? % (b). What's base-case NPV?S (e). What's the interest tax shield each year? (C). What's PV of interest tax shields? S (d). What's the APV of the project considering both PV of interest tax shield and issue cost? S The market value balance sheet and other financial data for Company XXX are listed below. Asset value $1,000,000 Debt $500,000 Equity $500,000 $1,000,000 $1,000,000 6% Cost of debt Cost of equity Marginal tax rate 12% 21% You are the financial manager of company XXX is considering a project that requires $300,000 investment today and expects to generate a perpetual cash flow of $30,000 each year (after-tax). This after-tax cash flow takes no account of interest tax shields on debt supported by the project. Assume no depreciation. The company issues $90,000 debt at 6% interest rate to finance the project and will keep the debt amount fixed once issued. The issue cost of debt is $2,000. You want to calculate APV of the project (keep four decimals including percentage to avoid rounding error) (a). What's cost of capital used to calculate base-case NPV (in %)? % (b). What's base-case NPV?S (e). What's the interest tax shield each year? (C). What's PV of interest tax shields? S (d). What's the APV of the project considering both PV of interest tax shield and issue cost? S

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