Company X is evaluating the following projects. The initial investment in physical assets (to be made at the end of year 0) cost 10 billion. The assets are expected to last four years and none of their value is expected to be recovered in year 4. Revenue in year 80-1 is expected to be 40,000. The total annual cost is expected to be half of the revenue. It is assumed that all cash flows occur at the end of the relevant year. An inventory of 0k must be kept at the end of year 10 and an additional 10k needs to be added to the inventory at the end of year 10. All items in stock will be sold at the end of year 4.

a. Assume no taxation. Determine the net present value of the project at a discount rate of 10%.

b. Assume the company faces a corporate tax rate of 30%. Use the straight-line depreciation method to determine the net present value of the item at a 10% discount rate.

c. Assume a net corporate debt ratio equal to 1, a corporate equity beta equal to 2, a market risk premium of 6% and a risk-free interest rate of 1%. The yield to maturity on corporate bonds is 10% and the corporate tax rate is as in b). Determine the appropriate discount rate for the project. Can the company reduce its cost of capital by increasing leverage? Give reasons for your answer.

Write each step in detail and preferably with an explanation! Answer all three sub-questions! Thanks!