2. The market-value balance sheet and other financial data for Company XXX are listed below.

Asset value $1,200,000 Debt $300,000

Equity $900,000

$1,200,000 $1,200,000

Cost of debt 5%

Cost of equity 12.5%

Marginal tax rate 21%

The financial manager of company XXX is considering a project that requires $50,000 investment today and expects to generate perpetual earnings and cash flow of $5,000 each year (pre-tax). Assume no depreciation. However, the project supports only 35% debt, which is different from the debt ratio of company XXX overall. Calculate NPV of the project by adjusting the WACC of the project. (keep four decimals including a percentage to avoid rounding error). [40 points]