2. (45 points total) The Seciovyb Dediug (SD) Corporation is considering Since this project is very different from SD's current operations, the adjusted present value a new 4-year project. will be used to value the project. The project requires an initial investment of $600,000 in new assets, which will be depreciated straight-line to zero over the project's 4-year life. These assets will be resold for $50,000 in four years. Each year for four years, the project is expected to generate pre-tax revenues of $700,000 and to require pre-tax costs of $420,000. The entire project will be financed through a 4-year bank loan with annual interest payments of 7 %. The principal repaid entirely at the end of the fourth year. It is estimated that the pre-tax costs (payable at time zero) of negotiating the loan (issuance cost) will be 5 % of the amount borrowed. on the loan will be The project's risk is very similar to the risk of Drallop Trebor (DT) Inc.'s assets. This firm is currently financed by 75,000 shares worth $21.00 each, and $525,000 worth of debt. The beta of DT's stock is 1.75, and the company borrows at a rate of 8 % The risk-free rate in the economy is 6 %, and the expected return on the market is 14 %. The current corporate tax rate is 40 % ( assume that it applies to both SD and DT). Ignore personal taxes. (a) (10 points) What is the appropriate discount rate to discount cash flows from the project? (b) (10 points) Calculate the cash flows from the project for each year from 1 to 4. (c) (10 points) Calculate the net present value of the project cash flows. (d) (10 points) Calculate the net present value of financials cash flows. (e) (5 points) What is the adjusted present value of the project