1. An oil production firm is evaluating a project to expand its operations. The project, if undertaken, will require an initial investment of 1.25 billion for new assets and infrastructure, and will increase the firm's before tax profit for the next year by 160 million. The incremental profits are expected to grow at a rate of 25% year over year over the ten-year economic life of the project. Within the scope of the project, a building that was purchased for 200 million a year ago and rented for an annual fee of 27.5 million this year will be used as headquarters. If the firm keeps renting the building, the rent is expected to increase at a rate of 10% per year. Last, the project will require an increase of 150 million in net working capital at initiation, but this investment will be recuperated at project termination. The firm can borrow at an annual interest rate of 40%, its owners expect to earn 50% per year on their investment, and their policy is to fund projects half-and-half through debt and equity. The firm's income is subject to a marginal tax rate of 25%. a) Determine the free cash flows of the project under main headings and show them in a table. b) Draw a cumulative free cash flow graph for the project and show the payback period on the chart. c) Calculate the net present value of the project and state what the decision about the project should be