Your company is about to start a new project

Your company is about to start a new project. The productive assets that you are planning to acquire are very similar to those of company XYZ. XYZ has the same type of fixed assets and working capital you plan to use, and its products are very similar to your project’s. Differently from your company’s project, XYZ also holds 40,000,000 in cash for possible future acquisitions. XYZ value of total levered assets is 78,000,000. XYZ keeps a constant debt-toequity ratio and its debt is riskless and equal to 23,000,000. The expected return on XYZ’s equity is 13.50% and the return on debt is 2.50%. For your new project you will keep a constant, perpetual and risk free debt of 24,000,000. Your assets will require an initial investment of 55,000,000 and will be depreciated straight line over 5 years. The depreciation tax shield is as risky as debt. The project will produce an expected EBITDA next year 8,700,000 and will grow perpetually at a 4.56% rate. The corporate tax rate is 34%. a) What is the expected return on unlevered equity for your new project? [10 Points] b) What is market value of the assets of your new project? [10 Points] c) What is the expected return on the project’s levered equity?