I = R_debt = 10% OCF₀ = −$100,000 K_u =

i = r_debt = 10% OCF₀ = −$100,000 K_u = r_assets = 15% OCF_1-4 = $39,800 = 25,000 × ($5 − $3) × (1 − 0.34) + $20,000 × 0.34
K_l = r_equity = 24.9% OCF₅ = $43,100 = $39,800 + $5,000 × (1 − 0.34) K = r_WACC = 11.20% Tax rate = 34% Debt-to-equity ratio = 3 Risk-free rate = 2%
The 5-year project requires equipment that costs $100,000.If undertaken,the shareholders will contribute $25,000 cash and borrow $75,000 with an interest-only loan with a maturity of 5 years and annual interest payments.The equipment will be depreciated straight-line to zero over the 5-year life of the project.There will be a pre-tax salvage value of $5,000.There are no other start-up costs at year 0.During years 1 through 5,the firm will sell 25,000 units of product at $5; variable costs are $3; there are no fixed costs.
When using the APV methodology,what is the NPV of the interest tax shield?

A) $9,666.51
B) $12,019.32
C) $9,377.31
D) $7,000.73