Q16. There is an investment project that requires an upfront capital investment of x + 2,...

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Q16. There is an investment project that requires an upfront capital investment of x + 2, which is depreciated in a straight-line over 5 years. Furthermore, in year 1 net working capital increases by y + 1 and in year 6 this extra net working capital is returned. The project generates the following EBIT: Time 5 EBIT 84 65 8+ y 4 The of the (unlevered) project is 1.3, the risk-free interest rate is 4%, and the market risk premium is 4%. The corporate tax rate is 25%. a. What is the free cash flow that the company generates in each year? The firm keeps a constant debt-to-equity ratio of 0.5 and given this debt-to-equity ratio debt is risk-free. 5 b. What the rwacc? c. What is the NPV of the tax benefits to debt? Q16. There is an investment project that requires an upfront capital investment of x + 2, which is depreciated in a straight-line over 5 years. Furthermore, in year 1 net working capital increases by y + 1 and in year 6 this extra net working capital is returned. The project generates the following EBIT: Time 5 EBIT 84 65 8+ y 4 The of the (unlevered) project is 1.3, the risk-free interest rate is 4%, and the market risk premium is 4%. The corporate tax rate is 25%. a. What is the free cash flow that the company generates in each year? The firm keeps a constant debt-to-equity ratio of 0.5 and given this debt-to-equity ratio debt is risk-free. 5 b. What the rwacc? c. What is the NPV of the tax benefits to debt?