XY Company is planning to purchase new equipment that costs $14.4 million in order to expand its production capacity. The equipment will be depreciated according to the straight-line method over its three-year life. The company currently has a debt-to-equity ratio of 50% and is in the 34% tax bracket. The required return on the firms levered equity is 15% and the equipment to be purchased is expected to generate the following EBITs:

Year EBIT

1 $4,560,000

2 $7,600,000

3 $7,040,000

The company has arranged a $7,440,000 debt issue to partially finance the expansion. This debt issue will generate $60,000 flotation fees, which will be amortized over the three year-life of the loan. Under the loan the company would pay interest of 7% at the end of each year on the outstanding balance at the beginning of the year. The company would also make yearend principal payments of $2,480,000 per year, completely retiring the issue by the end of the third year. Using the APV method, should the company proceed with the expansion.