DEI inc. is setting up a manufacturing plant overseas to produce a new line of electronic appliances. This will be a 7 year project. The company bought a building several years ago for $5 million in anticipation of using it for a project that was never undertaken, and the building was completely depreciated. Today's market value for the building is $4.1 million. The company wants to situate its new plant in this building. Beside the use of the building, the set-up of the plant will require an additional amount of $25 million to acquire new fixed assets that will be depreciated straight-line through the life of the project. The following are the current market data for DEI securities: Debt: $240,000,000 with a 7.5% interest rate, and the debt amount is kept constant. Common stocks: 9,500,000 shares outstanding, selling 73$ each. The levered equity Beta is 1.2. Market: 8% expected market risk premium, 5% risk free rate. DEI uses G. M. Wharton as its lead underwriter. Wharton charges DEI spreads of 8% on new common stock issues. Wharton has recommended that DEI raises the funds needed to build the plant by issuing new shares of common stocks. DEI corporate tax rate is 35%. (a) Calculate the new project's initial (time 0) cash flow, taking into account all side effects (that is, issuance costs). [27,173,913.04] (b) The new project is somewhat riskier than a typical project for DEI. The management thinks to increase the cost of capital for the entire project by 2% to account for this increased riskiness. Calculate the appropriate discount rate to use for the new project. [15.30%] The company will incur $7,000,000 in annual fixed costs. The plan is to manufacture 18,000 units per year and sell them for $10,900 each. The variable production costs (that is the cost of each unit) are $9,400 per appliance unit. (c) What is the annual after-tax cash flow from the new project at the end of each of the seven years of its life? [14,250,000] (d) Knowing that the depreciation tax shield is as risky as the assets of the project, what is the project's NPV? [Hint: the use of the building previously bought has to be considered in the NPV calculation!] [27,489,066.51]