Debt must be repaid in two equal installments

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Reference no: EM131622707

Digital Organics (DO) has the opportunity to invest $1.08 million now (t = 0) and expects after-tax returns of $680,000 in t = 1 and $780,000 in t = 2. The project will last for two years only. The appropriate cost of capital is 11% with all-equity financing, the borrowing rate is 7%, and DO will borrow $380,000 against the project. This debt must be repaid in two equal installments. Assume debt tax shields have a net value of $0.20 per dollar of interest paid. Calculate the project’s APV

Reference no: EM131622707

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