roblem 5:An unlevered firm has a value of $950 million. An otherwise identical firm has $80 million in debt at 7% interest (pre-tax cost of debt). Its unlevered cost of equity is 12%. After year 1, free cash flows and tax savings are expected to grow at a constant rate of 4%. The corporate tax rate is 25%. Use the CAPV model to determine the value of the levered firm:

ONUS PROBLEM (25 points): Montalbano Construction is considering the purchase of two pieces of equipment: a crane and a forklift. The projects are independent. The initial cash outlay for the crane is $125,000 and for $45,000 for the forklift. Montalbano's cost of capital is 12%. After-tax cash flows are as follows: Year Crane Forklift 0 -$125,000 -$45,000 43,000 16,000 43,000 16,000 3 43,000 16,000 4 43,000 16,000 a. For each project (Crane and Forklift), what is the: i. Net Present Value (NPV)? ii. Internal Rate of Return (IRR)? iii. Profitability Index (PI)? iv. Payback Period? b. What is one advantage and one disadvantage for the Crane project as compared to the Forklift