Question $4$

OMG Inc. has signed a $20-$year contract to produce modems for a local ISP. The production requires a machine that costs $\backslash (\backslash$$ $240,000\backslash ).$ The CCA rate is $\backslash (20\backslash \%\backslash )$ and the salvage value is $\backslash (\backslash$$ $3,600\backslash ).$ The annual revenues and expenses are expected to be $\backslash (\backslash$$ $110,000\backslash )$ and $\backslash (\backslash$$ $75,000\backslash )$ respectively. OMG finances the machine with a $\backslash (\backslash$$ $60,000\backslash )$ loan that has subsidized interest rate of $\backslash (3\backslash \%\backslash ).$ OMG is required to repay $\backslash (\backslash$$ $20,000\backslash )$ at year $5$ and the remaining balance at year $20.$ OMG's cost of debt is $\backslash (6\backslash \%\backslash )$ and the corporate tax rate is $\backslash (30\backslash \%\backslash ).$

$($a$)$ If the cost of unlevered equity is $\backslash (10\backslash \%\backslash )$ and the machine is the only asset in the class, calculate the NPV using the APV approach.

$($b$)$ If the cost of equity is $\backslash (11\backslash \%\backslash )$ and the asset class remains open with positive UCC, calculate the NPV using the FTE approach.

$($c$)$ If the weighted average cost of capital is $\backslash (9\backslash \%\backslash )$ and the machine is the only asset in the asset class, calculate the NPV of the project using the WACC approach.