The String Corp is planning on introducing a new line of violas. They expect sales to be $5 million for the first five years, and $6 million per year from year six onwards (in perpetuity). Management estimates that total fixed and variable costs account for 65% of sales. The corporate tax rate is 25%. The discount rate on unlevered equity is 14.5%. Management is considering financing the initial investment of $3 million with internal equity.

(A) What would the unlevered NPV of this project be?

(B) The CFO has decided that the firm might prefer to finance $2 million of the initial investment with a bond issuance. The yield on a bond with the same credit risk as the firm is 8% and the firm would issue 10-year bonds with annual coupons. The firm would hire an investment bank that would charge $200,000 that would be paid immediately but be amortized over the life of the loan for tax purposes. 

What would be the APV of the project with the debt issuance?