QUESTION 1:IKEA has made a booming business out of selling prefabricated furniture. Now,it is looking to launch a new hotel chain, Moxy Inc., designed to serve the budget-minded traveler.To launch Moxy Inc., IKEA is expected to invest $490 million today (year 0). The hotel chain isexpected to generate free cash flows of $24 million per year, starting at the end of the first year(year 1). Thereafter, these free cash flows are expected to grow at 3 percent in perpetuity. Forsimplicity, assume these cash flows are received at the end of each year.You are asked to assess the potential value of the new hotel chain. Since you are pressed for time,you ask Gran Lf, your assistant, to help you gather financial data. Gran reports recent financialdata for a couple of publicly-traded firms, as well as the expected returns on Treasuries, and therisk premium on the value-weighted market portfolio:CompanyMarket Valueof EquityMarket Value ofDebtExcessCashEquityBetaLa-Z-Boy Furniture Inc.1,00010050Intercontinental Hotels Group7,5002,70020010-year Treasury rate2.0%Expected Market Risk Premium5.0%Both companies in the table above had constant leverage ratios in the past, and their debt is highlyrated for both. Excess cash denotes cash the firms have but do not use in their operations. Assumethroughout that the CAPM holds for all assets.(a)If Moxy Inc. is 100% equity financed, what is a reasonable estimate of the required rate ofreturn on Moxy's equity? What is Moxy's WACC?(b)What is the value of launching Moxy Inc.? Is the project worth pursuing?(c)Assume now that the new hotel chain is instead financed with a debt-to-value ratio of 25%