The MFC Corporation needs to raise $200 million for its mega project. The NPV of the...
The MFC Corporation needs to raise $200 million for its mega project. The NPV of the project using all-equity financing is $40 million. If the cost of raising funds for the project is $20 million, what is the APV of the project?
Please avoid using excel, please show all work if possible!
Homework Answers
| Solution: | ||
| APV of the project is $20 million | ||
| Working Notes: | ||
| APV (Adjusted present value) | ||
| =Unlevered NPV of Free Cash Flows + net effect of debt | ||
| =Unlevered NPV of Free Cash Flows - cost of debt | ||
| =$40 million - $20 million | ||
| =$20 million | ||
| Notes: | Adjusted present value is the net present value of a project of all equity financing and present value of financing debt . | |
| Please feel free to ask if anything about above solution in comment section of the question. | ||
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