Calculate the projects apv and comment on your findings

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Question: Consider a project to produce solar water heaters. It requires a £10 million investment and offers a level after-tax free cash flow of £1.75 million per year for 10 years. The opportunity cost of capital is 12%, which reflects the project's business risk.

Suppose the project is financed with £5 million of debt and £5 million of equity. The interest rate is 8% and the marginal tax rate is 35%. Assume that the level of debt will be held for all of the 10 years, that is do not take repayment into account. Calculate the project's APV and comment on your findings.

Reference no: EM133560575

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