Coffee Mugs, Inc. is a U.S. firm that is planning to build a new production facility in either the USA or China. The initial cost to build the facility will be $9 million if built in the USA or 48.5 million if built in China. In either location, the project will require an initial investment of $225,000 in net working capital. Net working capital at the end of each of years 1 through 4 will be $45,000. Net working capital will be $0 at the end of the fifth (final) year of the project. The current exchange rate between the two currencies is 6.88 /$. The risk-free rate in the U.S. is 0.82% and the risk-free rate in China is 4.1%. Coffee Mugs, Inc. pays a 35% tax rate on its taxable income. The firms current and target debt-equity ratio is 0.62. Its cost of debt is 4.5% and its cost of equity is 11.5%. The facility will be fully depreciated over five years (straight line) with no salvage value. The facility is expected to impact the firms operating revenues and expenses as shown below.