Aardvark Industries is considering a project that will generate the following free cash flows:

Year	0	1	2	3
Free Cash Flows	($200)	$100	$80	$60

You are also provided with the following market value balance sheet and information regarding Aardvark's cost of capital:

Assets			Liabilities			Cost of Capital
Cash	0		Debt	400		Debt	7%
Other Assets	1000		Equity	600		Equity	12%
						c	35%

A. Aardvark's unlevered cost of equity is closest to:

A) 10.0% B) 10.4% C) 9.5% D) 9.0%

B. The unlevered value of Aardvark's new project is closest to:

A) $205 B) $100 C) $164 D) $202

C. Suppose that to fund this new project, Aardvark borrows $120 with the principal to be paid in three equal installments at the end each year. The present value of Aardvark's interest tax shield is closest to:

A) $5.15 B) $5.00 C) $5.90 D) $5.26