Dave$-$O Corp is looking to build a new factory in Florid. The initial investment is $$44$ million. The equipment will be fully depreciated using the straight$-$line method over its economic life of $7$ years. EBIT collected from the factory are projected to be $$5\mathrm{.}25$ million per year for $20$ years. The corporate tax rate is $20$ percent. The required rate of return for the project under all$-$equity financing is $12\%.$

This project could be partially, privately financed by taking out a $$27\mathrm{.}5$ million loan over a $15-$year period. The private, pretax cost of debt is $6\mathrm{.}6\%.$ Flotation costs would equal $3\mathrm{.}25\%$ of the loan total.

Alternatively, to encourage investment in the state, the Florida state government could subsidize the project by allowing offering the loan to Dave$-$O with a $5\%$ rate and zero flotation costs.

For either loan, all principal will be repaid in one balloon payment at the end of Year $15.$

a$.$ What is the NPV of the all equity project? Explain whether you would proceed with the project if it was an all$-$equity project.

b$.$ What is the NPV of the financing $($ignoring flotation costs$)?$

c$.$ What is the NPV of the financing accounting for flotation costs?

d$.$ What is the value of this project using the private debt financing with equity? Explain why you would or wouldn$$t pursue the project using this private debt financing.

e$.$ What is the NPV of the subsidized financing?

f$.$ What is the value $($APV$)$ of this project with the subsidized loan? Explain whether you would pursue the project with the subsidized loan.