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The answers were provided by my professor. For the following where did the tax come from (22) and how did they calculated the tax following years 1-3. Also how to calculate value levered and debt capacity?

QlII) lota Industries' Market Value Balance Sheet (S Millions) and Cost of Capital Liabilities Debt Equity Cost of Capital Debt Equity Assets 400 800 Cash Other Assets 1200 14% Assume that new projects are of average risk for lota and that the firm wants to hold constant its debt to equity ratio. What is its weighted costs of capital? (-%) +t7%) (us) : "io85 or i O.35% lota Industries is considering a new capital budgeting project that will last for three years. Based on research costing $77 million, it assumes gross profit of $200 million, $150 million, and $100 million in years 1, 2, and 3 respectively. It requires new equipment that costs $200 million and will depreciate down to zero at the conclusion of the project. The company has no need for more overhead during this project, but it will increase working capital by $10 million for the first year and reverse it evenly over the following two. Assume a tax rate of 35% and fill in the table below. ear 100 3 ear 2 Sales Coop 200 s o GP R4D (77) Dep 13,383.33 Ebit NI FCF Plus: De . 6647 66.67 Less at FCF (250) 43.341 3.3 \89,41 4,19 63,15 28

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