Monetta, Inc, has no debt, but is considering borrowing for…

Monetta, Inc, has no debt, but is considering borrowing for the first time to finance a three-year project. The company currently has an unlevered cost of capital of 12 percent and a 30 percent tax rate. The project requires an initial investment of $2.1 million, which will be straight-line depreciated over the three-year project life. The project, which is as risky as the firm’s current projects, is expected to generate earnings before depreciation of $1,050,000 per year for the three years. The capital for the initial investment will be raised with a loan for the full amount. The loan’s interest rate is 9 percent (which is also the current risk-free rate) and the principal will be repaid in one balloon payment at the end of the third year. What is the APV of the loan?

The 10-year loan for a project we are evaluating requires $3…

The 10-year loan for a project we are evaluating requires $300,000 in flotation costs. These costs can be straight-line amortized over the life of the loan. If our cost of debt is 9 percent and our tax rate is 25 percent, what is the NPV of the flotation costs?