A project generates net $($after$-$tax$)$ cash flows of $$18$ million every year for $4$ years. The investment is $$40$ million. The tax rate is $25\%.$ The firm has a target debt ratio $($debt ratio $=$ debt$/$value$)$ of $45\%.$ For the equity, they will issue $$4,000,000$ in preferred stock and the rest of the total funding will be from retained earnings. They intend to raise the funds to keep this target ratio.

$$ The firm$$s current bonds have $5$ years left to maturity, a coupon rate of $6\mathrm{.}8\%$ with annual coupons, a face value of $$1000$ and currently trade for $$98($This is the quoted price$).$ The $($before$-$tax$)$ cost on any new debt will be the same as the yield to maturity on the current bonds.

$$ The preferred stock has a dividend of $$5$ with a price of $$42.$ Issue costs on preferred stock are $$2.$

$$ To estimate the cost of retained earnings, the firm has an equity beta of $1\mathrm{.}25.$ The risk$-$free return is $4\%$ and the market risk premium is $12\%.$

Use the weighted average cost of capital $($WACC$)$ to find the net present value $($NPV$)$ of the project. Will they take the project? Explain.