Question 3 You are an original owner of a publicly traded food service company named Smith's Foods (SF). Your company has been in the high-end restaurant business (HE) for the past ten years. You announced today that the company will be issuing debt today to open a new fast food division (FF). Opening this new division costs $10M today, which you will fund by issuing debt. Revenues from this new division are expected to be $4M next year and are projected to grow by 4 percent per year. Costs from this new division are expected to be $3M next year and are projected to grow by 2 percent per year. The life of this project is 15 years. Analyses of other fast food businesses suggest that the beta of a typical fast food division equals 0.60. Assume that the revenues and costs have similar risk. Throughout this problem, assume a risk-free rate of 3 percent and a market risk premium of 5 percent. a) What is the NPV of this new investment? Is the investment worthwhile? (Hint: you will first need to use the CAPM to find the correct discount rate. Then you will need to use the growing annuity formula twice: once for revenues and once for costs.)