a. You are considering a project that will cost $750,000 in upfront costs and will produce $90,000 per year in EBIT for the next 15 years. You will be borrowing $200,000 to help offset the startup costs. You can borrow at 5.5% and pay a corporate tax rate of 28%. The equity beta for this project is 0.6, the riskless rate is 3%, and the expected return on a broad based index fund is 16%. What is the NPV of this project, using the FTE method?

b. What should bondholders be worried about if the WACC value of a proposed project is significantly higher than the FTE value of the same project? Assume all cashflows related to the project are perpetuities.