Anna is a Vice President at the J Corporation. The company is considering investing in a new factory and Anna must decide whether it is a feasible project. The annual returns for J Corp. and for a market are given below. Currently, the risk-free rate of return is 1.9% and the market risk-premium is 6.1%.

Year J Corp. Return (%) Market Return (%)

1 -2.35 -1.10

2 17.03 8.59

3 25.67 12.91

4 23.67 11.91

5 -17.95 -8.90

6 31.55 15.85

7 73.05 36.60

8 25.97 13.06

9 8.05 4.10

10 19.03 9.59

11 -11.93 -5.89

12 -1.95 -0.90

Beta of J Corp.'s stock = 2.0

Expected rate of return on J Corp. stock for the coming year = 14.10%

Cost of Equity = 14.10%

Cost of Debt = 2.5130%

Total Value of Firm = $446,830,500

Weight of Bonds = 11.3680%

Weight of Equity = 88.6320%

WACC = 12.78%

The land for the factory will cost $210,000. The factory will cost $5,910,000 to build and construction will take two years with construction costs payable in equal installments at the start of each year. The factory will operate for 20 years; however at the end of the fifth, tenth, and fifteenth year of operation, refurbishment costs will be $910,000. At the end of its 20 year lifespan, the land can be resold for $230,000. There is a 70% probability that the factory's net operating cash flows will be $1,246,901; however there is a 30% chance that net cash flows will only be $888,085. Assume that net operating cash flows flow at the end of each year.

What are the expected net operating cash flows per year?

What is the Internal Rate of Return and the Net Present Value of the project?

Should Anna recommend that the J Corporation build the factory? Yes or No?