Question: Answer the next two questions based on the following information: A project costs $2 million and the unlevered cash flow from it is $280,000 per

Answer the next two questions based on the following information: A project costs $2 million and the unlevered cash flow from it is $280,000 per year in perpetuity. The firm will finance the project with a debt-to-value ratio of 0.75 (or debt-equity ratio of 3). The pre-tax cost of debt is 7%. The industry unlevered beta is 1.5. The risk-free rate is 5% and the market risk premium is 6%. The corporate tax rate is 40%. What is the weighted average cost of capital (WACC) applicable to this project?

A. 10.3% B. 10.5% C. 10.7% D. 10.9% E. 11.1%

What is the NPV of the project?

A. $563,447 B. $591,238 C. $600,372 D. $616,822 E. $634,629

(show details of your work for both questions)

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