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Suppose you have a project with a projected annual cash flow before interest and taxes of $6 million, indefinitely. The initial investment of $20 million will be financed with 70% equity and 30% debt.

Your tax rate is 30%, your cost of capital if you were an all-equity firm is 26%, and your usual borrowing rate is 12%.

Your project has been reviewed by your local city government and has been selected to receive municipal funding at a rate of 10%. There will, however, be a flotation cost to this debt of $400,000, which is amortizable over 8 years and paid from the gross proceeds of your debt.

Using the APV technique, determine whether to approve this project or not.