5. (20 points) Capital Structure and Value: A firm asks you to help them value a new project they are considering. a. (3 pts) An equity beta for other firms invested in similar assets is Be=1.54. The average D/V ratio of these other firms is 25% and their debt had an average beta, Bp, of 0.18 and an average return, ID, of 5.1%. The current risk free rate, If, is 4% and the expected market premium, E(MRP), is 6%. The firm's tax rate is 25%. Based upon this info determine an unlevered (all-equity) cost of capital for the project, tu orra. b. (2 pts) After an investment of $100M today (t = 0) the project is expected to product unlevered free cash flows of +$12.32M a year starting in year one (t=1) and continuing on into perpetuity. Based upon this information, determine an estimate of the unlevered market value, Vu, for this project. What is the NPV of this project to the firm? c. (4 pts) Assume upon investing in this project the firm will work to maintain its current constant capital structure of D/V = 20% and that its cost of debt, to, is expected to remain at 4.90% (Bp = 0.15). Determine an estimate of the market value of the equity claim, E, in the project using WACC approach. d. (4 pts) Confirm this value for the equity claim, E, in the project using the Flow to Equity (FTE) method. e. (4 pts) Determine the market value of the equity claim, E, in the project using the APV approach with the assumption the project maintains a constant and permanent level of debt, D= $22.5M into perpetuity with ro = 4.9%. f. (3 pts) Explain the economic reason why the APV equity value estimate is different from the WACC equity value estimate. 5. (20 points) Capital Structure and Value: A firm asks you to help them value a new project they are considering. a. (3 pts) An equity beta for other firms invested in similar assets is Be=1.54. The average D/V ratio of these other firms is 25% and their debt had an average beta, Bp, of 0.18 and an average return, ID, of 5.1%. The current risk free rate, If, is 4% and the expected market premium, E(MRP), is 6%. The firm's tax rate is 25%. Based upon this info determine an unlevered (all-equity) cost of capital for the project, tu orra. b. (2 pts) After an investment of $100M today (t = 0) the project is expected to product unlevered free cash flows of +$12.32M a year starting in year one (t=1) and continuing on into perpetuity. Based upon this information, determine an estimate of the unlevered market value, Vu, for this project. What is the NPV of this project to the firm? c. (4 pts) Assume upon investing in this project the firm will work to maintain its current constant capital structure of D/V = 20% and that its cost of debt, to, is expected to remain at 4.90% (Bp = 0.15). Determine an estimate of the market value of the equity claim, E, in the project using WACC approach. d. (4 pts) Confirm this value for the equity claim, E, in the project using the Flow to Equity (FTE) method. e. (4 pts) Determine the market value of the equity claim, E, in the project using the APV approach with the assumption the project maintains a constant and permanent level of debt, D= $22.5M into perpetuity with ro = 4.9%. f. (3 pts) Explain the economic reason why the APV equity value estimate is different from the WACC equity value estimate