Company A is considering a project ( the only project for the company ) with the following estimated unlevered cash flows : ( Two years life time for the company )

Year 1 Year 2

EBIT $ 1,000 $ 2,000

Tax @ 30 % 300 600

700 1400

Company A finances its projects with 70 % equity and 30 % debt . The firm has calculated its cost of equity to be 12 % . The corporate tax rate is 40 % and interest on debt is tax deductible . The borrowing cost for the firm is 6 %

a ) Using the FCFs and WACC to calculate the leveraged firm value

b ) Using the un - levered CF and Tax - Shied Cash Flows to calculate their present values ( and the leveraged firm value equals the sum of the two )

c ) Will the results ( of the leveraged firm value ) in the above two be equal ? ( Simple answer with " Yes " or " No " is not enough ; you should provide your explanation)