Digital Organics (DO) has the opportunity to invest $1.13 million now (t = 0) and expects...

80.2K

Verified Solution

Question

Finance

Digital Organics (DO) has the opportunity to invest $1.13million now (t = 0) and expects after-tax returns of$710,000 in t = 1 and $810,000 in t = 2. Theproject will last for two years only. The appropriate cost ofcapital is 13% with all-equity financing, the borrowing rate is 9%,and DO will borrow $290,000 against the project. This debt must berepaid in two equal installments of $145,000 each. Assume debt taxshields have a net value of $.40 per dollar of interest paid.
Calculate the project’s APV. (Enter your answer indollars, not millions of dollars. Do not round intermediatecalculations. Round your answer to the nearest wholenumber.)
Adjusted present value $

Answer & Explanation Solved by verified expert

3.6 Ratings (614 Votes)

Calculation of Present value of Investment cost of equity 13 PVF 13 Present value Cash flow at year 0 1130000 1 1130000 Cash flow at year 1 710000 08849557522 6283185841 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Digital Organics (DO) has the opportunity to invest $1.13million now (t = 0) and expects after-tax returns of$710,000 in t = 1 and $810,000 in t = 2. Theproject will last for two years only. The appropriate cost ofcapital is 13% with all-equity financing, the borrowing rate is 9%,and DO will borrow $290,000 against the project. This debt must berepaid in two equal installments of $145,000 each. Assume debt taxshields have a net value of $.40 per dollar of interest paid.Calculate the project’s APV. (Enter your answer indollars, not millions of dollars. Do not round intermediatecalculations. Round your answer to the nearest wholenumber.)Adjusted present value $