Consider a project lasting one year only. The initial outlay is $2,200 and the e

Question

Consider a project lasting one year only. The initial outlay is $2,200 and the expected inflow is $2,400. The opportunity cost of capital is r = 0.22. The borrowing rate is rD = 0.12, and the tax shield per dollar of interest is Tc = 0.35.

What is the project

Consider a project lasting one year only. The initial outlay is $2,200 and the expected inflow is $2,400. The opportunity cost of capital is r = 0.22. The borrowing rate is rD = 0.12, and the tax shield per dollar of interest is Tc = 0.35.

Explanation / Answer

a. the base NPV= $2400- $2200= $200

but the cost of capital is 12%, then the total cost= $2464

($2200 X 0.12= $264)

B. the APV= ($64)

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