Consider a project to produce solar water heaters. It requires a $10 million investment and offers...

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Finance

Consider a project to produce solar water heaters. It requires a$10 million investment and offers a level after-tax cash flow of$1.56 million per year for 10 years. The opportunity cost ofcapital is 9.25%, which reflects the project’s business risk.

a. Suppose the project is financed with $4 millionof debt and $6 million of equity. The interest rate is 5.25% andthe marginal tax rate is 21%. An equal amount of the debt will berepaid in each year of the project's life.

Calculate APV. (Enter your answer in dollars, not millionsof dollars. Do not round intermediate calculations.Round your answer to the nearest wholenumber.)
b. If the firm incurs issue costs of $730,000to raise the $6 million of required equity, what will be the APV?(Enter your answer in dollars, not millions of dollars. Donot round intermediate calculations. Round youranswer to the nearest whole number. Negative amount should beindicated by a minus sign.)

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Consider a project to produce solar water heaters. It requires a$10 million investment and offers a level after-tax cash flow of$1.56 million per year for 10 years. The opportunity cost ofcapital is 9.25%, which reflects the project’s business risk.a. Suppose the project is financed with $4 millionof debt and $6 million of equity. The interest rate is 5.25% andthe marginal tax rate is 21%. An equal amount of the debt will berepaid in each year of the project's life.Calculate APV. (Enter your answer in dollars, not millionsof dollars. Do not round intermediate calculations.Round your answer to the nearest wholenumber.)b. If the firm incurs issue costs of $730,000to raise the $6 million of required equity, what will be the APV?(Enter your answer in dollars, not millions of dollars. Donot round intermediate calculations. Round youranswer to the nearest whole number. Negative amount should beindicated by a minus sign.)