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Digital Organics DO has the opportunity to invest 097 million now t 0 and expects after tax returns of 570000 in t 1 and 670000 in t 2 The project will last for two years only

Digital Organics (DO) has the opportunity to invest $0.97 million now (t = 0) and expects after-tax returns of $570,000 in t = 1 and $670,000 in t = 2. The project will last for two years only. The appropriate cost of capital is 11% with all-equity financing, the borrowing rate is 7%, and DO will borrow $270,000 against the project. This debt must be repaid in two equal installments. Assume debt tax shields have a net value of $0.20 per dollar of interest paid. Calculate the project’s APV.

 

Aug 28 2020 View more View Less

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