Question

A project will be financed with a mix of equity and a concessional government loan carrying interest below market and a partial guarantee fee. The project also yields interest tax shields and has expected flotation costs. Risk is project-specific and different from the firm’s existing assets. Which valuation framework most appropriately captures these features?

A WACC using current firm capital structure and market rates
B Dividend Discount Model with adjusted growth
C Adjusted Present Value (APV) separating unlevered value, tax shields, subsidies, and issue costs
D Residual Income model ignoring financing side effects
E NPV using book WACC and including subsidy as negative cost
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