You are a consultant who has been hired to evaluate a new product line for Markum Enterprises. The upfront investment required to launch the product line is

$ 14$14

million. The product will generate free cash flow of

$ 0.77$0.77

million the first year, and this free cash flow is expected to grow at a rate of

5 %5%

per year. Markum has an equity cost of capital of

11.3 %11.3%,

a debt cost of capital of

4.83 %4.83%,

and a tax rate of

42 %42%.

Markum maintains a debt-equity ratio of

0.700.70.

a. What is the NPV of the new product line (including any tax shields from leverage)?

b. How much debt will Markum initially take on as a result of launching this product line?

c. How much of the product line's value is attributable to the present value of interest tax shields?