Your firm is considering building a $592 million plant to manufacture HDTV circuitry. You expect operating profits(EBITDA) of $141 million per year for the next ten years. The plant will be depreciated on astraight-line basis over ten years(assuming no salvage value for taxpurposes). After tenyears, the plant will have a salvage value of $296 million(which, since it will be fullydepreciated, is thentaxable). The project requires $50 million in working capital at thestart, which will be recovered in year ten when the project shuts down. The corporate tax rate is 35%. All cash flows occur at the end of the year.

a. If therisk-free rate is 4.6%, the expected return of the market is 11.2%, and the asset beta for the consumer electronics industry is 1.74, what is the NPV of theproject?

b. Suppose that you can finance $474 million of the cost of the plant usingten-year, 9.1% coupon bonds sold at par. This amount is incremental new debt associated specifically with this project and will not alter other aspects of thefirm's capital structure. What is the value of theproject, including the tax shield of thedebt?