• A firm announces that it will invest $150 million in a project expected to generate a 15% rate of return on its beginning book value each year for the next 5 years.
• The required rate of return for this project is 12%.
• The firm depreciates its assets straight-line over the life of the investment.

1. Forecast free cash flows for each year of the project.
2. Estimate the residual earnings for each year of the project.
3. Calculate the value added to the firm from this investment.
4. Calculate the net present value of the cash flows generated by this project.
5. Explain if this project should be accepted by the firm.