1. A publicly-held corporation has recently reported the following financial statements as of 31.12.2020 Balance sheet Assets Liabilities and equity Short-term assets 3,000,000 Debt 12,000,000 Long-term assets 7,000,000 Equity 1,000,000 Income statement (2020) Sales 50,000,000 COGS 40,000,000 Other expenses 5,000,000 Gross profit 5,000,000 Interest on debt 2,000,000 Net taxable profit 3,000,000 Net profit after taxes 2,400,000 The company has outstanding 1 million shares of common stock, currently traded at a price of $10/share in NYSE. a. If the risk-free rate of interest (current yield on short-term T-bills) is 1256, the stock market is expected to return 18% next year and the company's estimated (CAPM) beta is 1.5, what is the required rate of return on its equity? b. Calculate the company's weighted average cost of capital. 2. In 2021, the firm in above is considering a new project, which requires an initial investment in equipment of 2,700,000 and also an initial investment in working capital of 1,000,000 (att = 0). The investment will be fully financed by issuing a 4-year bond with a yield-to-maturity of 20%. You expect the project to produce sales revenue of 2,400,000 per year for three years. You estimate manufacturing costs at 60% of revenues. Assume all revenues and costs occur at year-end) The equipment fully depreciates using straight-line depreciation over three years. At the end of the project, the firm can sell the equipment for 1,000,000 and also recover the investment in net working capital. Find the project's payback period, IRR, NPV and profitability index. d. Should the company invest in the project? Explain. Does your decision in (b) depend on the way the project is financed? If so, how? e