MLK, LLC., has sold shoes for over 112 years. The company currently has debt-equity

ratio of [(9+6+5+6+3)/10] and a tax rate of [35+5+6]%. The required return of the firm's

levered equity is [8+6+9+5]%. The company is planning an expansion in its production

capacity. They will buy an equipment that it is expected to generate the following unlevered

differential free cash flows:

At Year 0, the initial investment would be -$[(3 + 1.2 * (5+6)) * 1,000,000];

at Year 1 the FCF would be $[(4 * (3+9) * 100,000) + 563,875];

at Year 2 the FCF would be $[((6 * (2+9+5) * 100,000) + 573,584)];

at Year 3 the FCF would be $[(8 * (2+6+9+5) * 100,000) + 785,461].

The company has arranged a debt issue of $[(6*(1+6+A+5))*70,000] to finance the

expansion. Under the loan, the company would pay interest of [3+6]% at the end of each

year on the outstanding balance at the beginning of the year. If they take the debt, the

company would also make year-end payments of one third of the debt, completely retiring

the issue by the end of the third year.

a. What would be the value of the project if they finance strictly with equity?

HINT: You need to compute 0

NOTE: Write the number. Do not answer in millions or in thousands. If your

answer is 23,254,267.6849 answer 23254267.6849

b. What would be the value of the project if the company finances with the proposed

debt and computes the APV?

HINT: The debt is amortized