Question: Consider a project lasting one year only. The initial outlay is $1,000 and the expected inflow is $1,250. The opportunity cost of capital is r

Consider a project lasting one year only. The initial outlay is $1,000 and the expected inflow is $1,250. The opportunity cost of capital is r = 0.25. The borrowing rate is r_D = 0.10, and the tax shield per dollar of interest is T_c = 0.21.

a. What is the projects base-case NPV?

b. What is its APV if the firm borrows 32% of the projects required investment?

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