An incremental earnings forecast has been prepared for a new product being considered by Sentry Corporation. The product has a three-year life cycle. The free cash flows are calculated for years 0 to 3 (see table) assuming no debt. The free cash flow (-$21 million) in year 0 is the investment outlay for the product.

Incremental Earning Forecast
(millions $)
	Year 0		Year 1		Year 2		Year 3
Free Cash Flow	-21		8.6		16.6		8.6

The project will be partly financed with debt, with the debt-to-value, D/(D+E), ratio of 50%. The equity cost of capital is 12% and the debt cost of capital is 5%. The corporate tax rate is 20%.

1.Calculate the pre-tax WACC, r_U.

2.Calculate the after-tax WACC, r_WACC.

3.Calculate the levered value of the firm, V^L.