Pear Inc. is considering an investment in a new project. This project is expected to increase Pear Inc.'s free cash flow by $5 million the first year, and this contribution is expected to grow at a rate of 1% per year from then on. Pear Inc. estimates an initial investment on the project of $120 million and this is the only investment expected. Part of this investment will be financed with debt in the amount of $99,010 million. Consider that the CAPM holds and Pear Inc.'s equity beta is 1,2, the market expected return is 12% and the risk-free rate is 2%. Pear Inc. cost of debt is 4% and its corporate tax rate is 30%. After undertaking the project, Pear Inc. will adjust its capital structure to maintain its current debt-equity ratio of 4. Consider that the project has similar risk to the rest of the company and the only imperfection to the Modigliani-Miller world is the presence of deductible taxes.

1. (a)Compute the value of the project using the WACC method and only this method.
2. (b)Compute the debt capacity from this project today, in one year and in two years.
3. (c)Compute the value of the acquisition using the APV method and only this method.
4. (d)Determine the Net Present Value (NPV) of this acquisition. Is the financing of the project crucial for its profitability?
5. (e)Compute the Free Cash Flow to Equity today, in one year and in two years.
6. (f)Determine the NPV of this acquisition using the Flow-to-Equity method and only this method.