DBC Inc. is considering an 8-year project which requires a $55,000 machine. The CCA rate is 20% and it will be sold for $7,200 when the project ends. The machine is the only asset in the asset class. The project is expected to generate before tax cash flows of $18,500 per year for 7 years. The firm’s target debt-to-equity ratio is 0.8 If the project is financed by all equity, the cost of capital would be 15%. The corporate tax rate is 27%. DBC can finance half of the machine cost by borrowing from the provincial government at 3%, which is 2% lower than its cost of debt. However, DBC is required to pay 1.7% flotation cost and to repay one-third of the loan at the end of year 3 and the remaining balance at year 7. Using the adjusted present value method, calculate the NPV of the project.

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