5. SaveLife is a pharmaceutical company manufactures influenza vaccines. Given recent global pandemic due to covid-19, the company is considering investing in a new project to develop vaccine for covid-19. You have received the following information relating to the project: The project will run for four years; Annual sales are expected to start generate revenue of $30 million in year 2, and will grow at a rate of 10% until the end of the life of the project; Manufacturing costs and operating expenses are expected to be $10 million and $5 million per year, respectively; There will be significant R&D expenses for $4 million and $8 million for year 0 and year 1; Initial lab equipment costs of $10 million. The equipment will be depreciated via the straight-line method over five years to a book value of zero. However, at the end of the project, they will sell the equipment for $2 million; SaveLife's debt cost of capital is 12%, and the cost of equity capital is 10%; SaveLife pays a corporate tax rate of 30%. Assume all cash flow occur at year end. In addition, you have been told that no net working capital is required for the project. Assume that the project has the same risk as the firm and the firm will maintain a constant D/E ratio. SaveLife's current market capitalization is $400 million. The company also has $100 million in cash and $300 million in debt. A) Calculate the projected free cash flows of the new project SaveLife is considering. (5 marks) B) Assuming SaveLife wishes to constantly maintain a target leverage ratio; calculate the weighted average cost of capital. (4 marks) C) Calculate the levered value of the project. (5 marks) D) What is the debt capacity of the project over four years? (5 marks) E) What is the interest amount paid at the end of each year? (5 marks) F) What is the free cash flow to equity for each year? (5 marks) G) Calculate the project's NPV using flow-to-equity method and explain whether SaveLife should proceed with the project or not? (5 marks) 5. SaveLife is a pharmaceutical company manufactures influenza vaccines. Given recent global pandemic due to covid-19, the company is considering investing in a new project to develop vaccine for covid-19. You have received the following information relating to the project: The project will run for four years; Annual sales are expected to start generate revenue of $30 million in year 2, and will grow at a rate of 10% until the end of the life of the project; Manufacturing costs and operating expenses are expected to be $10 million and $5 million per year, respectively; There will be significant R&D expenses for $4 million and $8 million for year 0 and year 1; Initial lab equipment costs of $10 million. The equipment will be depreciated via the straight-line method over five years to a book value of zero. However, at the end of the project, they will sell the equipment for $2 million; SaveLife's debt cost of capital is 12%, and the cost of equity capital is 10%; SaveLife pays a corporate tax rate of 30%. Assume all cash flow occur at year end. In addition, you have been told that no net working capital is required for the project. Assume that the project has the same risk as the firm and the firm will maintain a constant D/E ratio. SaveLife's current market capitalization is $400 million. The company also has $100 million in cash and $300 million in debt. A) Calculate the projected free cash flows of the new project SaveLife is considering. (5 marks) B) Assuming SaveLife wishes to constantly maintain a target leverage ratio; calculate the weighted average cost of capital. (4 marks) C) Calculate the levered value of the project. (5 marks) D) What is the debt capacity of the project over four years? (5 marks) E) What is the interest amount paid at the end of each year? (5 marks) F) What is the free cash flow to equity for each year? (5 marks) G) Calculate the project's NPV using flow-to-equity method and explain whether SaveLife should proceed with the project or not