Consider a project to produce solar water heaters. It requires a $1,000 million investment and offers an after-tax cash flow of $100 million per year for infinite life. The opportunity cost of capital for an all-equity firm is 10% (R0), which reflects the project's business risk. Now, imagine that the firm intends to finance the project with $600 million of permanent debt at 8% (to repurchase the equity, so firm value does not change). Firm's tax rate is 40%.

(a) Based on the information provided above, please consider whether this project can be accepted, using adjusted present value (APV), flow to equity (FTE) and weighted average cost of capital (WACC).(12 marks)

(b) Please discuss the advantage of each of these three methods