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Bore Industries is considering investing $55 million into a new project. The projected free cash flows from the project are shown in the table below.
Year
0
1
2
3
4
5
FCF (in $ millions)
Debt Level (in $ millions)
(55.00)
80
15.00
30.00
50.00
10.00
5.00
Problem 1: In order to finance the project, Bore will issue a 5-year bond with a face value of $80 million that will be repaid in one bullet payment at the end of five years (as shown in the table below). The cost of debt on the bond is 4.5%, Bore's unlevered cost of capital is 12%, and its marginal corporate tax rate is 25%. Using the APV method, what is the NPV of the project?
Option 1: $31.04 millionOption 2: $21.09 millionOption 3: $86.15 millionOption 4: $95.12 million
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