3 October 2003 QUESTION 2 (Continued) Pv(tax shield)= 300000×0.30$250865×0.30$196817×0.30 1.10 $137364×0.30$71965×0.30 10)(.10)3 =$81818+$62198+$44361+$28146+$13405 =$229928 Issue costs The gross proceeds from the equity issue are Gross proceeds 1-Issue costs 6000000 1-0.02 =$6122449 The issue costs for the equity issue are therefore $122 449 Step 3-Calculate APV APV=-$84648+$229928-$122449 $22831 The project should be accepted - positive APV3 October 2003 QUESTION 2 (Continued) ( ) ( ) ( ) ( ) ( ) $229 928 $81818 $62198 $44 361 $28146 $13 405 1.10 $71965 0.30 1.10 $137 364 0.30 1.10 $196 817 0.30 1.10 $250 865 0.30 1.10 $300 000 0.30 PV tax shield 4 5 2 3 = = + + + +  +  +  +  +  = b. Issue costs The gross proceeds from the equity issue are: $6122 449 1- 0.02 $6 000 000 1- Issue costs Net proceeds Gross proceeds = = = The issue costs for the equity issue are therefore $122 449. Step 3 – Calculate APV $22831 APV - $84 648 $229 928 - $122 449 = = + The project should be accepted - positive APV