The Rouge II Inc. is an all-equity firm. It expects perpetual earnings before interest and taxes (EBIT) of $100 million per year. Its equity required return is 15%. The firm is subject to a 25% tax rate and has 20 million shares outstanding.

a. What is the value of Rouge II ? What is its share price?

b. Rouge II has an opportunity at an expansion project. The project will require $120 million investment and will generate $40 million pre-tax perpetual annual cash flow. What is Rouge II Inc. value and share price if it accepts the project and finances, it with new equity only?

c. Rouge II can borrow any amount at 10.0%. What is Rouge II value and share price, if it finances the project with debt?