Determine the value of the project using apv adjusted

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The firm wants to diversify with a new product line. The project requires an initial investment of $8,000,000 and will provide $2,750,000 in after-tax unlevered cash flows at the end of each year for 7 years. The project's unlevered cost of capital is 12%. The firm's target debt-equity ratio is 1.50. Debt (bonds) of $6,000,000 will be issued. Assume the debt has a 7-year life, a yield of 5% and a coupon of 5%. The tax rate is 40%.

a. Find the value of the project using APV (adjusted present value). You will need to estimate the unlevered cost of capital.

b. Find the value of the project using FTE (flow to equity).

Reference no: EM13478761

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