Intro Tennessee Whiskey is a U.S. producer of alcoholic drinks. The company is evaluating opening a new distillery in Scotland for serving the British market. The project will last four years, after which the distillery will be sold.

The company has estimated the following data:

Initial investment required: 80 million After-tax salvage value in year 4: 48 million Annual depreciation: 8 million British income tax rate: 29% Fraction of after-tax income remitted to parent: 100% Withholding tax rate imposed by Britain: 0% Stock beta: 0.8 Bond interest rate: 4% Target capital structure: 70% equity and 30% debt U.S. tax rate: 21% Treasury bond yield: 2% Expected return on the S&P 500: 5% The company expects the following revenue, costs, depreciation and exchange rates:

Year 0 Year 1 Year 2 Year 3 Revenue ( million) 80 80 80 Costs ( million) 64 64 64 Depreciation ( million) 8 8 8 Exchange rate (per ) $1.35 $1.31 $1.27 $1.23

Part 1 What is the free cash flow to the subsidiary in year 3, including the after-tax salvage value of the distillery (in million)?

Part 2 What is the free cash flow to the parent in year 3 (in $ million)?

Part 3 What is the cost of equity?

Part 4 What is the weighted average cost of capital?

Part 5 What is the NPV of the project (in $ million)?