Bob's is a retail chain of specialty hardware stores. The firm has 18,000 shares of stock outstanding that are currently valued at $82 a share and provide a rate of return of 13.2 percent. The firm also has 600 bonds outstanding that have a face value of $1,000, a market price of $1,032, and a coupon rate of 7 percent. These bonds mature in 7 years and pay interest semiannually. The tax rate is 35%. The firm is considering expanding by building a new superstore. The superstore will require an initial investment of $9.3 million and is expected to produce cash inflows of $1.07 million annually over its 10-year life. The risks associated with the superstore are comparable to the risks of the firm's current operations. The initial investment will be depreciated on a straight line basis to a zero book value over the life of the project. At the end of the 10 years, the firm expects to sell the superstore for an after-tax value of $4.7 million. Should the firm accept or reject the superstore project and why?

a.) Suppose that the company uses the following subjective approach to adjust the companys WACC for individual projects: high risk +4%, moderate risk +0% (i.e. same as WACC), low risk -4%. Considering the nature of the new project what adjustment would you recommend? Briefly explain. (there is no partial credit if the explanation is missing)