8- Consider a project with free cash flows in one year of $133,197 or $185,635, with each outcome being equally likely. The initial investment required for the project is $104,259, and the projects cost of capital is 21%. The risk-free interest rate is 8%.

Suppose that to raise the funds for the initial investment, the project is sold to investors as an all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this waythat is, what is the initial market value of the unlevered equity?

a- Suppose the corporate tax rate for Company A is 40%. Consider a firm that earns $1,080 before interest and taxes each year with no risk. The firms capital expenditures equal its depreciation expenses each year, and it will have no changes to its net working capital. The risk-free interest rate is 5.84%. Suppose the firm makes interest payments of $534 per year. What is the value of debt?

b- Suppose the corporate tax rate for Company A is 40%. Consider a firm that earns $998 before interest and taxes each year with no risk. The firms capital expenditures equal its depreciation expenses each year, and it will have no changes to its net working capital. The risk-free interest rate is 5.76%. Suppose the firm makes interest payments of $541 per year. What is the difference between the total value of the firm with leverage and without leverage?