Problem $18-12$ APV

Longhorn, Incorporated, has produced rodeo supplies for over $20$ years. The company

currently has a debt$-$equity ratio of $55$ percent and the tax rate is $23$ percent. The

required return on the firm's levered equity is $14$ percent. The company is planning to

expand its production capacity. The equipment to be purchased is expected to generate

the following unlevered cash flows:

The company has arranged a debt issue of $$9\mathrm{.}42$ million to partially finance the

expansion. Under the loan, the company would pay interest of $9$ percent at the end of

each year on the outstanding balance at the beginning of the year. The company also

would make year$-$end principal payments of $$3,140,000$ per year, completely retiring the

issue by the end of the third year. What is the APV of the project? $($Do not round

intermediate calculations and enter your answer in dollars, not millions of dollars,

rounded to $2$ decimal places, e$.$g$.,1,234,567\mathrm{.}89)$

Answer is complete but not entirely correct.

APV