You have been tasked by the CFO of Austin Systems, a Fortune 500 telecommunications equipment company, which has a levered _e of 1.4 and D/E of 3.0 with a cost of debt of 6.00%. Its current annual FCF is $1,000M. You are evaluating the attractiveness of the acquisition of a target company called Texas Technology (Project Longhorn), which has a current annual FCF of $200M (which is expected to grow at 3% per year in perpetuity) and D/E of 1.75.

The acquisition of Texas Technology will cost a total of $4,000M. Austin Systems expects to finance the project with 75% (non-recourse) debt and 25% equity. The cost of debt (k_d) for the project is 5.10%. In addition, Texas Technology will generate annual pretax cost synergies of $50M (which stay flat in perpetuity) to the combination. Debt will not be paid down over time.

1. What is the NPV of Project Longhorn? (11 points)