Problem 1. Suppose that a firm's cash flow next year, X1. is expected to be $20. The firm's annual cash flows are expected to grow at 15% a year till year 10. Starting in year 11, the rate of growth will slow to 5% per year, ie. = 1.05, for all t > 10. The approprinte rate for discounting the cash flows is 10% per annum. The firm currently pays out all its cash flows each period as dividends. Management has come across a project that requires an immediate investment of $200. This investment will raise all future cash flows by $40. (a) What proportion of the firm's equity will need to be pledged to new shareholders if the entire investment in project is to be obtained from them? (b) What will the value of the existing shareholders' claims be immediately after the project is announced but before the new capital is raised and the project is undertaken? (c) What will be the value of the existing shareholders' immediately after the project is undertaken? Problem 1. Suppose that a firm's cash flow next year, X1. is expected to be $20. The firm's annual cash flows are expected to grow at 15% a year till year 10. Starting in year 11, the rate of growth will slow to 5% per year, ie. = 1.05, for all t > 10. The approprinte rate for discounting the cash flows is 10% per annum. The firm currently pays out all its cash flows each period as dividends. Management has come across a project that requires an immediate investment of $200. This investment will raise all future cash flows by $40. (a) What proportion of the firm's equity will need to be pledged to new shareholders if the entire investment in project is to be obtained from them? (b) What will the value of the existing shareholders' claims be immediately after the project is announced but before the new capital is raised and the project is undertaken? (c) What will be the value of the existing shareholders' immediately after the project is undertaken