Unilever is currently evaluating a new project (called Stay Healthy) to produce organic and vegan food. The project will require an initial outlay of 65m and is expected to have a three-year life span. The projected cash flows associated with the project are displayed in the below table:

Table 1: Unilever Plc's potential projects cash flow information

All figures in 'm	2021	2022	2023
Sales COGS	85.0 (46.8)	87.0 (47.9)	92.0 (50.6)
Gross Profit Operating Expenses	38.3 (2.0)	39.2 (2.5)	41.4 (3.0)
EBITDA Depreciation	36.3 (1.0)	36.7 (1.0)	38.4 (1.0)
EBIT Tax Expenses	35.3 (6.3)	35.7 (6.4)	37.4 (6.7)
EBIAT	28.9	29.2	30.7
CAPEX Investment in Working Capital	2 0	3 0	2 5

The project has a debt capacity of 50% of the cost of the project, with an annual interest charge of 5%. The company currently has 10m of retained earnings available for this project, and the remainder would potentially be financed with a rights issue. The rights issue incurs additional costs of 2% of the amount raised, and the debt issuance is a bit cheaper, costing 1%, where both issue costs are tax deductible.

You will need to research the other values needed to complete Table 2 below.

Required: The company believes it will be a successful project and will help to distinguish them from their competitors. However, they would like you to evaluate the project using different methods and present a proposal to the investment committee in order for them to approve it.

a) Unilever is considering financing the project with 50% debt. Appraising the project using the Internal Rate of Return (IRR) and Net Present Value (NPV). Hint: calculate the project's free cash flow and use CAPM to compute the discount rate.

b) Evaluate the project using Adjusted Present Value (APV).

c) Assuming the market risk of the project is similar to the overall market risk of the firm, revise the projects NPV using the Weighted Average Cost of Capital (WACC). Contrast the answer to part a).

Note: Assume the same level of debt is held until the end of the project. Do not consider the repayment of the debt principal in any of the above valuations in parts a) to c).

d) Compare the methods used and give a final recommendation to the investment committee. Make sure you critically evaluate all methods and discuss other risk factors that were not included in the analysis.

Table 2: Additional information

Key Rates and Figures

Risk-free Rate (irf) ?

Project Cost of Debt (id) pre-tax 5.00%

Market premium ?

Marginal Corporate Tax Rate 25.00%

Unilever Plcs unlevered Beta () 0.4