You are a consultant who was hired to evaluate a new product line for Markum Enterprises. The upfront investment required to launch the product line is $13 million. The product will generate free cash flow of $760,000 the first year, and this free cash flow is expected to grow at a rate of 5% per year. Markum has an equity cost of capital of 10.7%, a debt cost of capital of 4.45%, and a tax rate of 38%. Markum maintains a debt-equity ratio of 0.80.

a. What is the NPV of the new product line (including any tax shields from leverage)?

b. How much debt will Markum initially take on as a result of launching this product line?

c. How much of the product line’s value is attributable to the present value of interest tax shields?