Use these assignment questions (i.e., ignore page 6 of the case) and use the assumptions in this document if they conflict with the assumptions given in the published case. Also, do not use the cost of capital of 7% given in the case and instead compute the WACC using the assumptions given below. Assignment Questions a) Compute the Net Present Value of the project's free cash flows. Hint: You need to include the year O FCF (i.e., the net investment), and discount the FCFs from year 1 to 20. Note that in year 20 the project is liquidated. b) Should East Light proceed with the project? The case provides assumptions to project the Free Cash Flows of the Stillwater project. Assumptions 1. ITC is paid to the East Light in year 0. The size of the ITC is in the assumptions tab. 2. You can consider the 32M in construction costs and the $736,524 development costs as capital expenditures ("capex") in year 0. 3. For tax purposes, East Light can depreciate the year 0 capex as follows: $25,372,500 in year 1 and the rest in a straight line from year 2 to year 11 to a salvage value of zero. 4. The solar farm will be operational in year 1 with an output of 33.75M kWh. Be sure to incorporate the 0.5% degradation per year in the output of the solar panels after year 1. 5. Note that the revenue per kWh will remain constant at $0.075. 6. Assume that net operating working capital is zero. 7. The rent is fixed at $80,000 per year for the whole 20-year project life. All other operating expenses (Operations & Maintenance, Insurance, Administrative, and Property Taxes) will grow at 2% per year. 8. At the end of the 20 years, the solar panels will be sold at 20% of the original capital expenditures of $32,736,524. Any capital gain or loss is taxed at the 21% corporate tax rate. 9. Assume that any loss in this project can be used to offset gains in the same period (perhaps in other projects of the fund). 10. To compute the WACC and to relever the beta asset, use as weights: ND/(ND+E) of 34% and E/(ND+E) of 66% (you can assume that cash is zero).' The cost of debt of this project is 5%. You have been told that for a similar solar facility, a competitor used an equity beta of 1.5. However, the financing of that other solar facility had a more aggressive debt structure, with ND/(ND+E) of 55%. 11. You can find information on the yield curve at U.S. Department of the Treasury website by clicking here or use the information I have sourced for you. Assume you are doing this analysis as of January 2, 2018.Select type of Interest Rate Data Daily Treasury Par Yield Curve Rates V Select Time Period 2018 Apply Date 1 Mo 2 Mo 3 Mo 4 Mo 6 Mo 1Yr 2Yr 3 Yr 5Yr 7Yr 10 Yr 20 Yr 30 Yr 01/02/2018 1.29 N/A 1.44 N/A 1.61 1.83 1.92 2.01 2.25 2.38 2.46 2.64 2.81 01/03/2018 1.29 N/A 1.41 N/A 1.59 1.81 1.94 2.02 2.25 2.37 2.44 2.62 2.78 01/04/2018 1.28 N/A 1.41 N/A 1.60 1.82 1.96 2.05 2.27 2.38 2.46 2.62 2.79 01/05/2018 1.27 NA 1.39 N/A 1.58 1.80 1.96 2.06 2.29 2.40 2.47 2.64 2.81Project Information Location Stillwater Distribution Company National Grid Independent Service Operator NYISO System Type Fixed Mount Size (KW DC) 27,000 Size (KW AC) 20,000 specific production (KWh/kWp) 1,250 Production Year 1 (kWh) 33,750,000 Annual Degradation 0.5% Development Costs Total Development Costs $ 736,524.00 Construction Costs EPC ($/w) $ 1.10 Total EPC Cost $ 29,700,000.00 Interconnection Cost $ 2, 150,000.00 Construction Management $ 150,000.00 Total Construction Costs $ 32,000,000.00 Project Financing Total Cost $ 32,736,524.00 Total Cost - ITC $ 22,642,971.08 Equity $ 13,585,782.65 Debt $ 9,057, 188.43 Debt Term (years) 10 Debt Rate 5% Operating Revenue Index REC Strike Price 0.075 LMP ($/KWh) 0.032 Capacity 0.003 Escalation Rate 2.0% Operating Expenses Annual Rent ($/year) $ 80,000.00 Annual Operations and Maintenance $ 80,000.00 Annual Insurance Fee $ 27,000.00 Annual Administrative Fee $ 40,500.00 Annual Property Taxes $ 34,000.00 Total Annual Operating Expenses $ 261,500.00 Annual Escalation 2% Tax Benefits ITC Eligible Basis (Fair Market Value) $ 33,645, 176.40 % Tax Credit 30% Total Tax Credit $ 10,093,552.92 Depreciation Allowed in the first year $ 25,372,500.00 Effective Tax Rate 21%