ABC International Inc. is considering the following project. They want to

introduce a new line of pastries and desserts. The sales for this division are

expected to be $$500,000$ per year for each of the next $3$ years. For this

expansion you are able to use some of your existing machines that are currently

not being used. Four years ago you paid $$250,000$ for these machines and the

current market value of the machines is $$110,000.$ You have been using a $5-$

year straight$-$line full depreciation on these machines. There is no need to buy

any additional equipment. Variable costs for the division are projected at $65\%$ of

sales. Fixed costs are $100,000$ per year. Total net working capital requirements

are $$75,000$ at the start, $$100,000$ in year $1,$ and $$50,000$ in year $2.$ Net working

capital will be recovered at the end of three years. The tax rate is $36\%.$

$($a$)$ What is the cash flow from assets for this project in each year?

$($b$)$ What is the NPV of this project if the discount rate is $12\%?$

$($c$)$ If ABC International Inc. is expected to pay a dividend of $$2\mathrm{.}45$ next time,

and the dividends are expected to grow at $5\%$ forever, what is the cost of

equity $($or required rate of return on equity$)$ for ABC International Inc. if the

current stock price is $$30.$

$($d$)$ Assuming the dividend$-$growth model you used in part $c.$ is correct, and

the return on the market portfolio is $12\%$ and the risk$-$free rate of return is

$2\%,$ what must be the beta of this project? $($Hint: use the CAPM or SML$).$