As the CFO of Moonlimited, you are calculating the cost of capital for Moonlimiteds projects.

Moonlimited has 4,000 bonds outstanding that mature in 20 years with a face value of $1,000 each. Each bond is traded at $1,350, with the effective pre-tax cost of debt of 10.5%.

Moonlimited has 120,000 preferred shares outstanding. Each preferred share pays a $3.6 dividend and can be sold for $25. The firms tax rate is 25%.

Moonlimited is considering a project that requires an initial investment of $3 million. You estimate that the projects free cash flows will be $0.22 million per year in perpetuity. You consider the after-tax weighted average cost of capital as the proper discount rate to evaluate this project.

What is the Net Present Value (NPV) of the project? Explain. (3 marks)