Question $3$

Use this information for Question $3$ and $4$:

Abacus Industries is considering a $3-$year project that will cost $$200$ today followed by free cash flows to firm of $$100$ in year $1,$$$80$ in year $2,$ and $$160$ in year $3.$

Assume they fund the project $100\%$ with equity at an unlevered cost of equity is $10\mathrm{.}5\%.$ The tax rate is $35\%.$ The unlevered NPV of the project is:

$$66\mathrm{.}95$

$$266\mathrm{.}95$

$$274\mathrm{.}60$

$$74\mathrm{.}60$

Question $4$

Continuing on from Question $3$:

Abacus Industries is considering a $3-$year project that will cost $$200$ today followed by free cash flows to the firm of $$100$ in year $1,$$$80$ in year $2,$ and $$160$ in year $3.$ The tax

rate is $35\%.$

Assuming instead of $100\%$ equity, Abacus funds the project with $$70$ of debt at an interest rate of $7\%.$ For the three years of the project ABC will pay only interest. The loan of

$$70$ will be repaid at the end of year $3.$ The balance of the cost of the project will be financed with equity. What is the levered NPV of this project using the APV method:

$$79\mathrm{.}10$

$$169\mathrm{.}10$

$$29\mathrm{.}10$

$$299\mathrm{.}10$

Question $5$

Sparky Inc. is evaluating a project that costs $$150$ using the WACC method. Their WACC is $11\mathrm{.}5\%$ and the project has EBIT of $$75$ per year each year for six years. The tax rate

is $30\%.$ Calculate the NPV of the project.

$$108\mathrm{.}38$

$$68\mathrm{.}94$

$$191\mathrm{.}62$