Please answer Question 1 part A and B based on the given information.

Section II: Debt Financing The goal of this section is to provide realistic application of debt financing to enhance your understanding. Rivian Automotive Company has decided to expand its vehicle line-up with a new model, the R1X, which will rival Jeep's Wrangler line of vehicles. To produce these vehicles, Rivian will need to invest $200 million on January 1, 2022 to produce the vehicles. Rivian expects that once they begin production it will take 3 years to produce the vehicles. Over the course of the three years, customers will be able to reserve their vehicle with a down payment. As a result, Rivian expects cash inflows related to the R1X to be $40 million during the first half of 2022, $25 million during the second half of 2022, $30 million during the first half of 2023, $45 million during the second half of 2023, $55 during the first half of 2024, and $75 million during the second half of 2024. At the end of the 2024, Rivian will deliver the vehicles to the customers. Prior to financing costs, the project will generate gross profit of $70 million at the end of 2024 when the vehicles are delivered to the customers. Rivian needs to finance the entire $200 million initial investment using debt. Rivian has four options for financing: Long-term Note, Bond A, Bond B, or Bond C. Long-Term Note Rivian can borrow $200 million from a series of banks through a syndicated loan. The banks will provide a three-year loan requiring semiannual payments of $36,919,500 with a semiannual interest rate of 3%. Bond A Rivian can issue a three year $223.9 million bond with a 3% coupon rate paid semiannually on June 30th and December 31". The issue price is $200 million. Bond B Rivian can issue a three year $200 million bond with a 7% coupon rate paid semiannually on June 30th and December 31". The issue price is $200 million. Bond C Rivian can issue a three year $176.5 million bond with a 12% coupon rate paid semiannually on June 30th and December 31". The issue price is $200 million. Complete the following table related to cash flows: Project Cash Note Payable Flows Cash Flows $40,000,000 (36,919,500) Bond A Cash Flows (3,358,500) Bond B Cash Flows (7,000,000) Bond C Cash Flows (10,590,000) 6/30/2022 12/31/2022 6/30/2023 12/30/2023 6/30/2024 12/31/2024 25,000,000 (36,919,500) 30,000,000 (36,919,500) 45,000,000 (36,919,500) 55,000,000 (36,919,500) 75,000,000 (36,919,500) (3,358,500) (3,358,500) (3,358,500) (3,358,500) (227,258,500) (7,000,000) (7,000,000) (7,000,000) (7,000,000) (207,000,000) (10,590,000) (10,590,000) (10,590,000) (10,590,000) (187,090,000) Complete the following table related to income: Project Income Note Payable Interest Expense Bond B Interest Expense Bond C Interest Expense 6/30/2022 0 6,000,000 7,000,000 6,673,333.33 12/31/2022 0 5,072,415 7,000,000 6,673,333.33 6/30/2023 Bond A Interest Expense 7,341,833.3 3 7,341,833.3 3 7,341,833.3 3 7,341,833.3 3 7,341,833.3 3 7,341,833.3 3 0 7,000,000 6,673,333.33 12/30/2023 0 7,000,000 4,117,002.4 5 3,132,927.5 2 2,119,330.3 5 1,075,325.2 6 6,673,333.33 6/30/2024 O 7,000,000 6,673,333.33 12/31/2024 $70,000,000 7,000,000 6,673,333.33 The cash flows of the project must cover the cash flows of the related financing. Thus, if the project has only generated $20 million in cash so far, Rivian would not be able to make a $30 million cash payment on a loan. Should Rivian exclude any of the financing options due to cash flow concerns? Explain your rationale in 2-3 sentences. Exclude notes payable. Which financing option should Rivian choose if the goal is to maximize income? Explain your rationale in 2-3 sentences. Rivian should choose Bond C to maximize income due to the least amount of cash outflow. The interest expense is also the smallest among the bonds. Section II: Debt Financing The goal of this section is to provide realistic application of debt financing to enhance your understanding. Rivian Automotive Company has decided to expand its vehicle line-up with a new model, the R1X, which will rival Jeep's Wrangler line of vehicles. To produce these vehicles, Rivian will need to invest $200 million on January 1, 2022 to produce the vehicles. Rivian expects that once they begin production it will take 3 years to produce the vehicles. Over the course of the three years, customers will be able to reserve their vehicle with a down payment. As a result, Rivian expects cash inflows related to the R1X to be $40 million during the first half of 2022, $25 million during the second half of 2022, $30 million during the first half of 2023, $45 million during the second half of 2023, $55 during the first half of 2024, and $75 million during the second half of 2024. At the end of the 2024, Rivian will deliver the vehicles to the customers. Prior to financing costs, the project will generate gross profit of $70 million at the end of 2024 when the vehicles are delivered to the customers. Rivian needs to finance the entire $200 million initial investment using debt. Rivian has four options for financing: Long-term Note, Bond A, Bond B, or Bond C. Long-Term Note Rivian can borrow $200 million from a series of banks through a syndicated loan. The banks will provide a three-year loan requiring semiannual payments of $36,919,500 with a semiannual interest rate of 3%. Bond A Rivian can issue a three year $223.9 million bond with a 3% coupon rate paid semiannually on June 30th and December 31". The issue price is $200 million. Bond B Rivian can issue a three year $200 million bond with a 7% coupon rate paid semiannually on June 30th and December 31". The issue price is $200 million. Bond C Rivian can issue a three year $176.5 million bond with a 12% coupon rate paid semiannually on June 30th and December 31". The issue price is $200 million. Complete the following table related to cash flows: Project Cash Note Payable Flows Cash Flows $40,000,000 (36,919,500) Bond A Cash Flows (3,358,500) Bond B Cash Flows (7,000,000) Bond C Cash Flows (10,590,000) 6/30/2022 12/31/2022 6/30/2023 12/30/2023 6/30/2024 12/31/2024 25,000,000 (36,919,500) 30,000,000 (36,919,500) 45,000,000 (36,919,500) 55,000,000 (36,919,500) 75,000,000 (36,919,500) (3,358,500) (3,358,500) (3,358,500) (3,358,500) (227,258,500) (7,000,000) (7,000,000) (7,000,000) (7,000,000) (207,000,000) (10,590,000) (10,590,000) (10,590,000) (10,590,000) (187,090,000) Complete the following table related to income: Project Income Note Payable Interest Expense Bond B Interest Expense Bond C Interest Expense 6/30/2022 0 6,000,000 7,000,000 6,673,333.33 12/31/2022 0 5,072,415 7,000,000 6,673,333.33 6/30/2023 Bond A Interest Expense 7,341,833.3 3 7,341,833.3 3 7,341,833.3 3 7,341,833.3 3 7,341,833.3 3 7,341,833.3 3 0 7,000,000 6,673,333.33 12/30/2023 0 7,000,000 4,117,002.4 5 3,132,927.5 2 2,119,330.3 5 1,075,325.2 6 6,673,333.33 6/30/2024 O 7,000,000 6,673,333.33 12/31/2024 $70,000,000 7,000,000 6,673,333.33 The cash flows of the project must cover the cash flows of the related financing. Thus, if the project has only generated $20 million in cash so far, Rivian would not be able to make a $30 million cash payment on a loan. Should Rivian exclude any of the financing options due to cash flow concerns? Explain your rationale in 2-3 sentences. Exclude notes payable. Which financing option should Rivian choose if the goal is to maximize income? Explain your rationale in 2-3 sentences. Rivian should choose Bond C to maximize income due to the least amount of cash outflow. The interest expense is also the smallest among the bonds