1 a) Suppose Company Three-D Printing is contemplating at undertaking an $11 million project which will produce an operational cash flow of $3.7 million for 5 years. The cost of equity is 25%, the cost of debt is 15%, and the tax rate is 34%. Would the all-equity company undertake the project?

1 b) How about if the company wants to be levered and can obtain the sufficient debt necessary to finance using a D/E ratio of 2.5, arranging a balloon payment loan after flotation costs of 2.5%, would the company undertake the project in this situation?

1 c) State your key observation from the result of the above.