UrbanSolar(US) has the opportunity to invest $2.15million now (t= 0) and expects after-tax cash flowof $1,500,000 int= 1 and $1,800,000 int= 2. The project will last for two years only. The opportunitycost of capital is 15% with all-equity financing, the borrowing rate is 7%, and USwill borrow $1.8millionagainst the project. This debt must be repaid in two equal installments of $900,000 each. Assume the tax rate is 21%.

A.Calculate the base case NPV of this project.

B.What is the interest tax shield each year?

C.Calculate the projects APV.

D.If the firm incurs issue costs of $150,000 to raise the $1.8 millionof required equity, what will be the APV?

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