16. There is an investment project that requires an upfront capital investment of 12 , which is depreciated in a straight-line over 6 years. Furthermore, in year 1 net working capital increases by 3 and in year 6 this extra net working capital is returned. The project generates the following EBIT: The of the (unlevered) project is 1 , the risk-free interest rate is 4%, and the market risk premium is 4%. The corporate tax rate is 30%. a. What is the free cash flow that the company generates in each year? The firm wants to keep a constant debt-to-equity ratio of 0.35 and given this debt-toequity ratio debt is risk-free. b. What the rwax ? 5 c. What is NPV of the levered project? Assume now that instead of keeping a constant debt-to-equity ratio the firm wants to issue risk-free debt worth 20 that matures in 4 years and makes coupon payments in each of the next 4 years. After 4 years the firm will remain unlevered d. What is NPV of the unlevered project? e. What is NPV of the levered project