Problem 7, Decision Rules: Suppose your company is contemplating starting a new business line. The initial investment would be $50,000,000,000. They expect the project to bring in a stream of $1,000,000,000 per year for 40 years. At the end of the 40th year, the company would sell that business line for an estimated $70,000,000,000. Find the NPV, IRR, Payback Period, and Profitability Index of the project. (15 points) Use the return on common stock you computed in Problem 4 as the required rate of return for this project. If you do not feel comfortable with your answer to Problem 4, assume a rate here, state that assumption clearly, and proceed with the rest of the problem. Would you advise that your company to accept or reject the project and why? (5 points) Bonus 1: Suppose instead that the acquisition above would yield an indefinite stream of $1,000,000,000 cash flows. What would the project's NPV be then? (5 points) Bonus 2: Suppose you could choose between buying the bond in Problem 1 and a municipal bond that was otherwise identical but paid a yield to maturity 2 percentage points lower. If your personal tax rate was 20%, which would you choose and why? (5 points) Bonus 3: We discussed the inverse relationship between bond yields and bond prices. Would you expect the same relationship between stock yields and stock prices? Why or why not? In your answer, explain the mechanism that drives that relationship. (5 points) Problem 7, Decision Rules: Suppose your company is contemplating starting a new business line. The initial investment would be $50,000,000,000. They expect the project to bring in a stream of $1,000,000,000 per year for 40 years. At the end of the 40th year, the company would sell that business line for an estimated $70,000,000,000. Find the NPV, IRR, Payback Period, and Profitability Index of the project. (15 points) Use the return on common stock you computed in Problem 4 as the required rate of return for this project. If you do not feel comfortable with your answer to Problem 4, assume a rate here, state that assumption clearly, and proceed with the rest of the problem. Would you advise that your company to accept or reject the project and why? (5 points) Bonus 1: Suppose instead that the acquisition above would yield an indefinite stream of $1,000,000,000 cash flows. What would the project's NPV be then? (5 points) Bonus 2: Suppose you could choose between buying the bond in Problem 1 and a municipal bond that was otherwise identical but paid a yield to maturity 2 percentage points lower. If your personal tax rate was 20%, which would you choose and why? (5 points) Bonus 3: We discussed the inverse relationship between bond yields and bond prices. Would you expect the same relationship between stock yields and stock prices? Why or why not? In your answer, explain the mechanism that drives that relationship. (5 points)