Digital Organics (DO) has the opportunity to invest $1.15
million now (t = 0) and expects after-tax returns of
$730,000 in t = 1 and $830,000 in t = 2. The
project will last for two years only. The appropriate cost of
capital is 11% with all-equity financing, the borrowing rate is 7%,
and DO will borrow $270,000 against the project. This debt must be
repaid in two equal installments of $135,000 each. Assume debt tax
shields have a net value of $0.20 per dollar of interest
paid.
Calculate the project’s APV. (Enter your answer in dollars,
not millions of dollars. Do not round intermediate calculations.
Round your answer to the nearest whole number.)
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