Matsushita Corp., is evaluating a new project. The projected cashflows of the project, including financing, are...

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Matsushita Corp., is evaluating a new project. The projected cashflows of the project, including financing, are the following. 0 1 2 3 4 EBIT 10 10 10 10 Interest (5%) -4.0 -4.0 -3.0 -2.0 Earning Before Taxes 6.0 6.0 7.0 8.0 Taxes (40%) -2.4 -2.4 -2.8 -3.2 Net Income 3.6 3.6 4.2 4.8 Depreciation Cap Ex 25.0 25.0 25.0 25.0 -80.0 Additions to NWC -20.0 20.0 Matushima's has an equity cost of capital of 11%, a debt-equity ratio of 0.20, and a cost of debt of 5%. The risk of this project is similar to Matsushima's current operations. However, because the leverage of this project is significantly different than the historical debt-equity ratio of 0.20, you realize that the best approach to value this project is the adjusted present value method (APV). 1. What are the free cash flows of the project. (5 points) 2. What is the present value of the interest tax shield associated with this project? (5 points) 3. What is the best estimate of the project's value from the information given above? (10 points) Matsushita Corp., is evaluating a new project. The projected cashflows of the project, including financing, are the following. 0 1 2 3 4 EBIT 10 10 10 10 Interest (5%) -4.0 -4.0 -3.0 -2.0 Earning Before Taxes 6.0 6.0 7.0 8.0 Taxes (40%) -2.4 -2.4 -2.8 -3.2 Net Income 3.6 3.6 4.2 4.8 Depreciation Cap Ex 25.0 25.0 25.0 25.0 -80.0 Additions to NWC -20.0 20.0 Matushima's has an equity cost of capital of 11%, a debt-equity ratio of 0.20, and a cost of debt of 5%. The risk of this project is similar to Matsushima's current operations. However, because the leverage of this project is significantly different than the historical debt-equity ratio of 0.20, you realize that the best approach to value this project is the adjusted present value method (APV). 1. What are the free cash flows of the project. (5 points) 2. What is the present value of the interest tax shield associated with this project? (5 points) 3. What is the best estimate of the project's value from the information given above? (10 points)