1. Chapter 18 Questions and Problems 2 - APV Knotts, Inc., an all-equity firm, is considering an investment of $1.2 million that will be depreciated according to the straight-line method over its 4-year life. The project is expected to generate earnings before taxes and depreciation of $426,000 per year for four years. The investment will not change the risk level of the firm. The company can obtain a 4-year, 9.5% loan to finance the project from a local bank. All principal will be repaid in one balloon payment at the end of the fourth year. The bank will charge the firm $45,000 in flotation fees, which will be amortized over 4-year life of the loan. If the company financed the project entirely with equity, the firm's cost of capital would be 13%. The corporate tax rate is 25%. Using the APV method, determine whether the company should undertake the project. 2. Chapter 18 Questions and Problems 3 - FTE Pompeii Pizza Club owns three identical restaurants popular for their specialty pizzas. Each restaurant has a debt-equity ratio of 40% and makes interest payments of $42,000 at the end of each year. The cost of the firm's leveled equity is 19%. Each store estimates that annual sales will be $1.275 million; annual cost of goods sold will be $745,000; and annual general and administrative costs will be $405,000. These cash flows are expected to remain the same forever. The corporate tax rate is 22%. a. Use the flow to equity approach to determine the value of the company's equity. b. What is the total value of the company