A company has hired you as a consultant to help decide on an expansion project. The project will produce $8 million of revenue per year for seven years. Cash expenses will be $5 million, and depreciation expenses will be $2 million per year. The project will increase net working capital by $60,000 and fixed (capital) assets by $100,000 each year. The firm has a market value of outstanding debt of $11,050,000 and $25,000,000 in equity. The before-tax cost of debt is 6 percent, and the tax rate is 27 percent. The cost of equity is 12%

1. What is the yearly free cash flow on the project? Show all your work

2. What is the firm's WACC? Show all your work.

3. Should the firm accept this project if it requires an initial investment of 13 million? Why or Why not? Explain using the appropriate equations. show all your work.

4. Suppose the firms before cost of equity decreases to 9%. Will this to affect the expansion decision? Why or why not? explain using the appropriate equations. Show all your calculations.

5. What is the payback period for this project? Based on this when would the project be acceptable? Explain. Show all your work.