3. Company Mester is considering an investment project to sell a new line of mobile phone. The company has spent $100,000 for a marketing study that determined the company will sell Year WN - Units Sales 100,000 110,000 150,000 140,000 70,000 Bl u e pnone has a variable cost of $120 per cellphone while other fixed costs are $500,000 per year. The equipment required in producing of the new line will cost $4,000,000. This cost will be depreciated straight line to zero over the equipment's 8 year life, and the machine can be sold for $1,200,000 at the end of the year 5th when the project finishes. The new plant will be built in a land that the company bought 3 years ago for $1,800,000. If the land were sold today, the net proceeds would be $2,000,000 after taxes. And the total costs that used for building are $500,000. In 6 years, the building will be worth $3,500,000 after taxes. The process requires an initial investment in net working capital of $1,500,000 that will be recovered when the project finishes The company also spent $1,000,000 on R&D for the new line. The following market data on Mester's securities are current: Debt: 50,000 of 9 percent coupon bonds outstanding, 10 years to maturity. $1000 par value each and the bonds have current yield to maturity of 10% and make semiannual payment. Common stock: 900,000 share outstanding, dividend has been paid last year with $3 and it will increase a constant rate of 2% each year and b=1.5. The total return for investor will be 18%. Preferred stock: 100,000 shares of preferred stock outstanding and selling for $81.16 per share Market: 8% expected market risk premium, 4.3% risk free rate. The company tax rate is 40% a. Calculate the price of the company's bond and common stock? b. What is the required return that investors can expect when they invest in stock of Mester company? So, with this rate, how do you think about the investment's decision for this stock? What is the after tax salvage value of the equipment? d. Calculate the NPV of the project to see whether the company should implement the new project if we have the cost of capital is 11%