A project costs $14 million and is expected to produce cash flows of $4 million per year for 15 years.The opportunity cost of capital is 20%.If the firm has to issue stock to undertake the project and issue costs are $1 million,what is the project's APV?

Question

Quizplus · Accepted Answer

The APV (Adjusted Present Value) is calculated by finding the NPV of the project without considering the financing costs and then adjusting for the costs of issuing stock. The NPV of the cash flows is calculated using the formula for the present value of an annuity. The cost of issuing stock is subtracted from the NPV to get the APV.

A Project Costs $14 Million and Is Expected to Produce