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Suppose you have been hired as a financial consultant to Defense Electronics, Incorporated (DEI), a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. This will be a five-year project. The company bought some land three years ago for $4.6 milion in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. The land was appraised last week for $5.4 milion on an aftertax basis. In five years, the aftertax value of the land will be $5.8 million, but the company expects to keep the land for a future project. The company wants to build its new manufacturing plant on this land; the plant and equipment will cost $3208 million to bulid. The following market data on DEI's securites is current: Debt. 115.0007 .4 percent coupon bonds outstanding. 22 years to maturity, selling for 109 percent of par; the bonus have a par value of $2,000 and make semiannual poyments. Common 8,900.000 shares outstanding. seling for $7910 per share, the beta is stock. 12 Preferred 451,000 shares of 4,3 percent preferred stock outstanding. selling for stock $81,10 per share, the stock has s par vaue of $100 Market 8 percent expected morket fisk premum/32 percentisk-ftee rate DEI uses G.M. Wharton as its lead underwriter Wharton charges DEl spreads of 6 percent on new common stock issues. 5 percent on new preferred stock issues. and 4 percent on new debt issues. Wharton has included all drect and inditect issuance costs falong with its profit in setting these spreads Wharton has recommended to DEl that it raise the funds needed to build the papt by issuing new shares of common stock DEi's tax rate is 21 percent The project requires $1,325,000 in inifal nect working capital investment to get operational Assume Wharton raises all eauity for new projects Orca Industries is considering the purchase of Shark Manufacturing. Shark is currently a supplier for Orca and the acquisition would allow Orca to better control its material supply. The current cash flow from assets for Shark is $8.1 million. The cash flows are expected to grow at 5 percent for the next five years before leveling off to 2 percent for the Indefinite future. The costs of capital for Orca and Shark are 9 percent and 7 percent, respectlvely. Shark currently has 3 million shares of stock outstanding and \$25 million in debt outstanding. What is the maximum price per share Orca should pay for Shark? (Do not round Intermedlate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Calculate the project's initial Year 0 cash flow, taking into account all side effects. Assume that the net working capital will not require flotation costs. (A negative answer should be Indicated by a minus sign. Do not round Intermedlate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. The new RDS project is somewhat riskier than a typical project for DEI, primarily because the plant is being located overseas. Management has told you to use an adjustment factor of 3 percent to account for this increased riskiness. Calculate the approprlate discount rate to use when evaluating DEl's project. (Do not round Intermedlate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. The manufacturing plant has an elght-year tax IIfe, and DEl uses straight-line depreclation. At the end of the project (that is, the end of Year 5), the plant and equipment can be scrapped for $46 million. What is the aftertax salvage value of this plant and equipment? (Do not round Intermediate calculations ond enter your answer In dollars, not mililons of dollars, rounded to the nearest whole number, e.g., 1,234,567.) d. The company will incur $6,900,000 in annual fixed costs. The plan is to manufacture 17,500 RDSs per year and sell them at $10,850 per machine: the variable production costs are $9.450 per RDS. What is the annual operating casf flow (OCF) from this project? (Do not round intermedlate calculations and enter your onswer In dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) e. DEl's comptroller is primarlly interested in the impact of DEl's investments on the bottom line of reported accounting stotements. What will you tell her is the accounting break-even quantity of RDSs sold for this project? (Do not round intermediate calculatlons and round your answer to the nearest whole number, e.g., 32.) 1. Finally. DEl's president wants you to throw all your calculations, assumptions, and everything else into the report for the chief financial officer, all he wants to know is What the RDS project's internal rate of return (IRR) and net present value (NPV) are (Do not round Intermediate calculations. Enter your NPV onswer In clollars, not millions of dollars, rounded to 2 decimal places, e.9., 1,234,567.89. Enter your IRR onswer as a percent rounded to 2 decimal places, e.gn, 32.16.)