The current balance sheet of the firm Bonana Global measured in book value is as follows: Current Assets (receivables) - 0,3 million euros Fixed Assets - 1,4 million euros

Debt (due in 1 year; 5% contractual rate) - 1 million euros Equity (100 shares) - 0,7 million euros

In contrast, the balance sheet of the company measured in market value is as follows:

Current Assets - 0 Fixed Assets - 0,9 million euros

Debt (due in 1 year; 5% contractual rate) - 0,75 million euros Equity (100 shares) - 0,15 million euros

The management is considering a new project requiring an initial investment of 0,1 million euros and generating a riskless payoff of 0,15 million euros one year from today, which will be captured entirely by existing creditor. The risk free rate is 5%.

1. What is the NPV of the project?
2. What is the market value of the firms assets if the project is undertaken?
3. What is the yield-to-maturity of the firms debt?
4. If the project is funded by issuing new shares, what would be the market value of the equity stake held by existing shareholders? Assume that the creditors will capture 100% of the projects future cash flow.
5. If the project is funded by issuing new shares, what would be the market value of the existing debt? Assume that the creditors will capture 100% of the projects future cash flow.
6. If the project is funded by issuing new one-year debt (5% contractual rate) pari passu with the existing debt (i.e., with the same seniority as existing debt) and the issuance of the new debt increases the value of existing equity by 0,01 million euros, what would be the market value of the existing debt?
7. If the project is funded by issuing new one-year debt (5% contractual rate) pari passu with the existing debt and the issuance of the new debt increases the value of existing equity by 0,01 million euros, what would be the market value of the new debt?