What is the npv of the project for bore industries

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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

80

30.00

80

50.00

80

10.00

80

5.00

0

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 million
Option 2: $21.09 million
Option 3: $86.15 million
Option 4: $95.12 million

Reference no: EM132791569

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