SupposeABC has an equity cost of capital of 10.9%market capitalization of $9.36billion,and an enterprise value of$13billion. AssumeABC'sdebt cost of capital is7.5%,its marginal tax rate is37%,the WACC is9.17%,and it maintains a constantdebt-equityratio. The firm has a project with average risk. Expected free cashflow,debtcapacity,and interest payments are shown in the tablebelow:

Year 0 1 2 3

FCF ($ million) -100 49 103 74

D = d*VL 52.69 43.80 18.98 0

Interest 0 3.95 3.29 1.42

a.What is the free cash flow to equity for thisproject?

b. What is its NPV computed using the FTEmethod? How does it compare with the NPV based on the WACCmethod?