A company has a capital structure of 40% debt and 60% equity. The firm tax rate is 40% and considers taking up a 90 million project, which generates perpetuity cash flows. Assumes that total expenses are 75% of revenue with no depreciation expense. The project is financed with 40% debt and 60% equity with a discount rate (WACC) of 10%. The cost of equity is 14% and before tax cost of debt is 8%. If the annual (before interest expenses) pretax cash flow of the project is $18 million, answer the follow questions

(a) What is the NPV of the project?

(b) i) What is the rate of return for debtors? ii) Do debtors get back their required rate of return?

(c) i) What is the rate of return for equity holders (shareholders)? ii) Do equity holders get back more (or less than) their required rate of return?

(d) How much is the interest tax shield that equity holders enjoy?

(e) (6%) What are the project NPV for (i) debtholders and (ii) equity holders? (iii) What should be the breakeven after-tax cash flow for equity holders at r_e = 14%?