Using the WACC Method to Value Firms/Projects SMU Corp is considering selling one of its product lines. The product line is expected to generate free cash flows of $2 million per year, growing at a...

On paper if possible!

Extracted text: Using the WACC Method to Value Firms/Projects SMU Corp is considering selling one of its product lines. The product line is expected to generate free cash flows of $2 million per year, growing at a rate of 3% per year. SMU has an equity cost of capital of 10%, a debt cost of capital of 7%, a corporate tax rate of 21%, and a debt-equity ratio of 2. What is the levered (after-tax) value of this production line, assuming that it has average risk and the D/E ratio is constant?


Extracted text: Problem 5 Using the principle of backward induction, please select the optimal project among project 1, project 2, and the RiskFree project. Redraw the decision tree in a separate piece of paper and annotate the expected values at each node, cross out suboptimal branches, and annotate the NPV of Project 1, 2, and RiskFree. Ignore discounting (discount rate r = 0) Attach your solution to this question Payoff = $200 expand %3D Payoff = $120 %3D contract %09 expand Payoff = $65 %3D 40% Project 1 cost = $120 Payoff = $80 contract %3D expand Payoff = $300 %3D Project 2 cost = $110 30% Payoff = $90 %3D contract %0% Payoff = $80 Risk-free project cost = $100 %3D Payoff = $120