Question: A project costs $1 million and has a base-case NPV of exactly zero (NPV = 0). a. If the firm invests, it has to raise

A project costs $1 million and has a base-case NPV of exactly zero (NPV = 0).

a.

If the firm invests, it has to raise $510,000 by a stock issue. Issue costs are 15.25% of net proceeds. What is the projects APV? (Negative amount should be indicated by a minus sign.)

Adjusted present value $

b.

If the firm invests, its debt capacity increases by $510,000. The present value of interest tax shields on this debt is $77,000. What is the projects APV? (Negative amount should be indicated by a minus sign.)

Adjusted present value $

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