Question: 1. A project has a NPV, assuming all equity financing, of $1.5 million. To finance the project, debt is issued with associated flotation costs of

1. A project has a NPV, assuming all equity financing, of $1.5 million. To finance the project, debt is issued with associated flotation costs of $60,000. The flotation costs can be amortized over the project's 5 year life. The debt of $10 million is issued at 10% interest, with principal repaid in a lump sum at the end of the fifth year.

a. If the firm's tax rate is 34%, calculate the project's APV.

b. Discuss whether you would expect WACC method to give you a different answer, and if yes, then why.

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