The market-value balance sheet and other financial data for Company XXX are listed below.

Asset value $1,000,000 Debt $300,000

Equity $700,000

$1,000,000 $1,000,000

Cost of debt 6%

Cost of equity 12%

Marginal tax rate 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 $100,000 debt at 6% interest rate to finance the project and will keep the debt amount fixed once issued. The issuing cost is 5000. You want to calculate APV of the project Please show all your work to get full credit (keep four decimals including percentage to avoid rounding error).

(a). Whats cost of capital used to calculate base-case NPV (in %)?

(b). Whats base-case NPV?

(c). Whats PV of interest tax shields?

(d). What's the APV of the project considering both PV of interest tax shield and issuing cost ?