You are evaluating a project that requires an investment of $$90$ today and provides a single

cash flow of $$115$ for sure one year from now. You decide to use $100\%$ debt financing, that

is$,$ you will borrow $$90.$ The risk$-$free rate is $5\%$ and the tax rate is $25\%.$ Assume that the

investment is fully depreciated at the end of the year, so without leverage you would owe

taxes on the difference between the project cash flow and the investment.$($Hint: use the riskfree as the relevant cost of capital for the unlevered firm as well as for the cost of the debt.

Furthermore, you know that WACC that accounts for leverage is equal to rU $(1$ D$/$A $$ t$)$

where rU is the capital cost for the unleveraged firm.$)$

$($a$)$ Calculate the NPV of this investment opportunity using the APV method.

$($b$)$ Using your previous answer, calculate the WACC of the project.

$($c$)$ Verify that you get the same answer using the WACC method to calculate NPV$.$

$($d$)$ Finally, show that flow$-$to$-$equity also correctly gives the NPV of this investment opportunity.