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A startup company called iLuna is being evaluated by its founder Luna at date t = 0, which is the beginning of the startupss growth period. Luna expects the growth period to last for 3 years. After the growth period, iLuna will enter into the early- maturity period. The early-maturity period is expected to last for 17 years. After it finishes the early-maturity period, the founder of iLuna expect the company to enter the late-maturity period. The late-maturity period is expected to last forever.

In the growth period, the growth rate of invested capital is 80%, the return on invested capital is 10%, and the required rate of return is 20%. In the early-maturity period, the growth rate is 20%, the return on invested capital is 100%, and the required rate of return is 15%. In the late-maturity period, the growth rate decreases to 2.5%, the return on invested capital is 7% and is equal to the required rate of return. The amount of invested capital in iLuna at the beginning of the growth period is $1.5 million.

1. What is the economic value at t = 0 of the free cash flows iLuna is expected to pro- duce during the growth period?

2. What is the economic value at t = 0 of the free cash flows iLuna is expected to pro- duce during the early-maturity period?

3. What is the economic value at t = 0 of the free cash flows iLuna is expected to pro- duce during the late-maturity period?

4. What is the economic value of iLuna at t = 0?

5. If the growth rate in the late-maturity period is 5%, compute by how much the eco- nomic value of iLuna at t = 0 changes. Explain the result using one or two sentences.

6. If the return on invested capital in the early-maturity period decreases to 50%, does the value of iLuna at t = 0 change? If it changes, compute the new value and explain why the value changes. If it does not change, please explain why the value does not change.