Intro You are thinking of buying a startup for $40 million. The company will generate free cash flows of $6 million per year forever. You can take out an interest-only loan with an interest rate of 6%. The loan does not require any principal repayments and will go on forever. The weighted average cost of capital is 14% and the tax rate is 38%. Part 1 A I 1 Attempt 1/10 for 10 pts. What is the NPV of buying the startup (in \$million)? Correct NPV=FCF0+KWFCF=40+0.146=2.857(million) Part 2 Attempt 7/10 for 10 pts. How much of the $40 million should you borrow to achieve an internal rate of return of 29% on your equity investment? Part 3 Attempt 1/10 for 10 pts. How much of the $40 million should you borrow to achieve an internal rate of return of 80% on your equity investment? Correct D=(1t)rIRRCFIRRCF0=(10.38)0.060.860.840=34.08 (million) Borrowing more leads to a greater internal rate of return for equity holders, but also increases their risk