2. Suppose that LL is considering the same project as in Question 1, but instead of maintaininga debt-equity ratio of 2/3, the firm will finance the $80 million cost of the project throughborrowing $60 million in the form of a 12 year amortizing loan and an equity contribution of$20 million. Assume that the interest rate paid on this loan will be the same as the firm'sdebt cost of capital from Question 1, and that all other project parameters from Question 1remain unchanged (i.e. the only aspect that is different here is the use of the amortizing loaninstead of continually maintaining a debt-equity ratio of 2/3).(a) Determine a 12-year annuity factor and use it to calculate the firm's annual payment onthe loan.(b) Use the APV approach to determine the NPV of the project. To do this, follow thetemplate file and construct a table with 7 rows: "Year", "Free cash flow", "Unleveredproject value", "Debt", "Interest payment", "Interest tax shield", "Tax shield value",and "Levered project value". Note that because this is an amortizing loan, the amountof debt will decline over time (the decrease will be the total loan payment less the interestpayment). Complete the table, including zeroes for values that should be equal to zero.Calculate project NPV based on your table using values for year 0.(c) Use the WACC approach to determine the NPV of the project.To do this, followthe template file and construct a table with 12 rows: "Year", "Free cash flow", "Debt","Interest payment", "Interest tax shield", "Tax shield value", "Effective debt", "Equity","Effective debt-equity ratio", "Equity cost of capital", "WACC", and "Levered projectvalue". Report the effective debt-equity ratio to 4 decimal places and both equity costof capital and WACC in percentage form to 2 decimal places. Note that the values forthese three rows should be left blank in the column corresponding to year 15. Completethe rest of the table, including zeroes for values that should be equal to zero. Ensurethat the values in this table do not depend in any way on the values from your tablein part (b). This means that you will have circular references.Calculate project NPVbased on your table using values for year 0.(d) Use the FTE approach to determine the NPV of the project. To do this, follow the tem-plate file and construct a table with 13 rows: "Year", "Free cash flow", "Debt", "InterestUnlike with Question 1, do not also calculate NPV using theNPV()function.You will probably find it helpful to examine the spreadsheet filecbl_extensions.xlsxposted as part of Module6 on Learn.An additional complication here is that, depending on the order in which you enter formulas, you can havea divide by zero error. If this happens, your spreadsheet might get stuck, not updating values as you enter moreformulas. To avoid this situation, you might need to change the order that you are following when entering theformulas.3

payment", "Interest tax shield", "After-tax interest payment", "Net borrowing", "Freecash flow to equity", "Tax shield value", "Effective debt", "Effective debt-equity ratio","Equity cost of capital", and "Value of free cash flow to equity". Report the effectivedebt-equity ratio to 4 decimal places and the equity cost of capital in percentage formto 2 decimal places. Note that the values for these two rows should be left blank in thecolumn corresponding to year 15. Complete the rest of the table, including zeros forvalues that should be equal to zero. Ensure that the values in this table do not dependin any way on the values from your tables in parts (b) and (c). This means that youwill have circular references. Calculate project NPV based on your table using valuesfor year 0.(e) Consider each of the following two alternatives:(i) instead of a 12 year amortizing loan, have the loan amortize over a shorter period(e.g. 10 years);(ii) instead of a 12 year amortizing loan, have the loan be non-amortizing over the 12year period.In each case, assume that everything else is the same as for the previous parts of thisquestion. Briefly discuss whether project NPV would be higher, lower, or the same asin parts (b)-(d), and provide a short intuitive explanation. Do not do any calculations.