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Homework answers / question archive / A project costs $1 million and has a base-case NPV of exactly zero (NPV = 0)

A project costs $1 million and has a base-case NPV of exactly zero (NPV = 0). (A negative answer should be indicated by a minus sign. Enter your answers in dollars, not millions of dollars.)

a. If the firm invests, it has to raise $640,000 by a stock issue. Issue costs are 18.03% of net proceeds. What is the project's APV?

Adjusted present value

1

b. If the firm invests, there are no issue costs, but its debt capacity increases by $640,000. The present value of interest tax shields on this debt is $90,000. What is the project's APV?

Adjusted present value

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