Question: You are looking at a project that will generate free cash flow after covering expenses at the end of first year of $100,000 but it

You are looking at a project that will generate free cash flow after covering expenses at the end of first year of $100,000 but it will require an initial investment of $75,000. The current risk free rate is 4% but given the risk profile of this project, you believe that a 9% risk premium is appropriate.

NPV=13,495.58

a) If you fund the company fully with equity, what is your projected initial value of the unlevered equity?

b) what is the initial market value of the levered equity? using risk free rate?

c) what is the expected return over the year on the equity without leverage?

d) what is the expected return on equity with leverage?

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