3. Consider Table 2. Suppose Airline Inc. has a market capitalization of $10 billion, and an enterprise value of $15 billion. Suppose Airline Inc's cost of debt is 8%, cost of equity is 12%, and its marginal tax rate is 20%. Year FCF Tax Shield Question 3 Today -100 Table 2 End of year i 50 0.90 End of year 2 90 0.72 End of year 3 65 0.31 a. Consider Table 2. What is Airline Inc's post-tax WACC? (b. Consider Table 2. Suppose that the project in Table 2 has the same risk as the firm. What is the value of the project today? Should we invest in this project and why? (c. Consider Table 2. What is Airline Inc's unlevered cost of capital? What is the unlevered value of the project? Airline d. Consider Table 2. Show that the APV of Lucent's project matches the value computed using the WACC method.

Consider Table 2. Suppose Airline Inc. has a market capitalization of $10 billion, and an enterprise value of $15 billion. Suppose Airline Inc's cost of debt is 8%, cost of eauitv is 12%. and its marginal tax rate is 20%. (Total 50 Marks) a. Consider Table 2. What is Airline Inc's post-tax WACC? (8 Marks) b. Consider Table 2. Suppose that the project in Table 2 has the same risk as the firm. What is the value of the project today? Should we invest in this project and why? (14 Marks) c. Consider Table 2. What is Airline Inc's unlevered cost of capital? What is the unlevered value of the project? (14 Marks) Airline d. Consider Table 2. Show that the APV of project matches the value computed using the WACC method. (14 Marks)