Part 1: Company J is considering a project with a 4-year lifespan. The initial cash flow estimate is $125 million in the first year increasing by $125 million in each of the years 2 through 4. To begin the project, the company will need to invest $1 billion dollars. Company J would like to cover the initial investment amount with existing internal resources and thereby not borrow. As such it remains an all-equity firm. The unlevered cost of its equity is 10%, similar to other firms in the industry sector. There will be no terminal value of significance at the end of year 4. Using the domestic APV equation below, construct a spreadsheet model to determine whether it makes sense for Company J to proceed with this project. Please see an example for an APV spreadsheet at the Corporate Finance Institute website. You should attach your spreadsheet below. APV=t=1T((OCFt)(1)(1+Ku)t+Dt(1+i)t+It(1+i)t)+TVT(1+Ku)TCo

Part 2: Now, imagine that Company J finances the project with $600,000,000 of debt at =8 percent. As such the company becomes a levered firm due to its acquisition of debt. What do the debt and related interest expense mean for the project if the tax rate is 40 percent? Update your spreadsheet model from above to demonstrate the effect of this debt on your decision.