3) You recently went to work for Allied Components Company, a supplier of auto repair parts used in the after-market with products from Daimler AG, Ford, Toyota, and other automakers. Your boss, the chief financial officer (CFO), has just handed you the estimated cash flows for two proposed projects. Project I involves adding a new item to the firm's ignition system line; it would take some time to build up the market for this product so that the cash inflows would increase over time. Project Sinvolves an add-on to an existing line, and its cash flows would decrease over time. Both projects have 3-year lives because ABC is planning to introduce entirely new models after 3 years. Here are the net cash flows in thousands of dollars): car Expected Net Cash Flows Project I. Project S (S200) ($200) 140 150 120 170 Depreciation, salvage values, net working capital requirements, and tax effects are all included in these cash flows. The CFO also made subjective risk assessments of each project, and he concluded that both projects have risk characteristics that are similar to the firm's average project. ABC's WACC is 10%. You must determine whether one or both of the projects should be accepted. a) What is the NPV of each project? According to NPV, which project(s) should be accepted if they are independent? Mutually exclusive? b) What is the IRR of each project? According to IRR, which project(s) should be accepted if they are independent Mutually exclusive? c) What is the payback period for each project? According to the payback criterion, which project(s) should be accepted if the firm's maximum acceptable payback is two years if Projects L and S are independent? d) What are the two main disadvantages of discounted payback? Is the payback method useful in capital budgeting decisions? Explain FINA Company's assets are $750 million, financed through bank loans, bonds, preferred stocks and common stocks. The amounts are as follows: Bank loans: $ 100 million borrowed at 5% Bonds: $280 million, paying 8% coupon with semi-annual payments, and maturity of 10 years. FINA sold its $1,000 par-value bonds for $970 and had to incur $20 flotation cost per bond. Preferred Stocks: $120 million, paying $15 dividends per share. FINA sold its preferred shares for $220 and had to incur $20/share flotation cost. Common Stocks: $250 million, beta is 3.20, risk free rate is 5 percent, and market rate is 10%. * i. IF FINA is subject to 30% tax rate, what is the WACC for FINA? FINA can invest $11 million in a new production plant. The plant has an expected life of 5 years and forecasted sales are 6 million a year. Fixed costs are $2 million a year, and variable costs are $1 per unit. The product will be priced at $2 per unit. The plant will be depreciated straight-line over 5 years to a salvage value of $1 million. FINA uses the WACC to compute the present value of the future cash flows. What is the project's NPV under these base-case assumptions? Should the company accept the project