Question D (35%) VXY Corporation considers accepting a two-year project Z with the following characteristics: pn Investment outlay at t = 0: 20,000,000 Expected after-tax cash ow at t = 1: 11,000,000 Expected after-tax cash ow at t = 2: 11,000,000 Marginal corporate tax rate: 35 percent Asset beta: 0.? Assume risk free borrowing (if relevant) Risk free rate per annum: 3 percent Expected market risk premium per annum: 4 percentage points Calculate project Z" s base-case NPV. . Assume VXY borrows 30% of project Z's investment outlay throughout the lifetime of the pro- ject. Calculate project Z's debt at the end of year 0 and at the end of year 1. Calculate project Z's interest tax shield for year 1 and year 2. Calculate project Z's APV. . Modigliani and Miller's after-tax discount rate may be mitten as rm = r (1 Tc D I V). Calcu- late Modigliani and Nliller's after-tax discount rate and use it to calculate project Z's NPV if the debt-to-value ratio is 30%. . Assume project Z" s debt ratio is constant, and debt is rebalanced at the end of each year. Calcu- late project Z's NPV (or APV) if the debt-tovalue ratio is 30%. How much is expected to be borrowed at the end of year 0 and at the end of year 1? Calculate/ estimate the interest tax shield for year 1 and year 2. What is the present value (t = 0) of the interest tax shields? . Assume project Z" s debt ratio is constant, and debt is rebalanced continuously. Calculate project Z's NPV (or APV) if the debt-to-value ratio is 30%. How much is expected to be borrowed at the end of year 0 and at the end of year 1? Calculate/ estimate the interest tax shield for year 1 and year 2. What is the present value (t = 0) of the interest tax shields