Problem $4.$ Adjusted Present Value $($APV$)$

$$Gemini$,$ Inc., an all$-$equity firm, is considering a $$1\mathrm{.}9$ million investment that will be depreciated according to the straight$-$line method over its four$-$year life. The project is expected to generate earnings before taxes and depreciation of $$685,000$ per year for four years. The investment will not change the risk level of the firm. The company can obtain a four$-$year $9\mathrm{.}5$ percent loan to finance the project from a local bank. All principal will be repaid in one balloon payment at the end of the fourth year. The bank will charge the firm $$28,000$ in flotation fees, which will be amortized over the four$-$ year life of the loan. If the company financed the project entirely with equity, the firm$$s cost of capital would be $13$ percent. The corporate tax rate is $30$ percent. Using the adjusted present value method, determine whether the company should undertake the project.$$ ROSS, S; WESTERFIELD, R; JAFFE, J$.(2010),$ p$.569$