Ellesmere Glass Works Inc. (EGWI) is considering the following two machines for manufacturing mirrors: SS Model DD Model Expected annual before tax cost savings $40,000 $35,000 Economic Life 10 years 5 years Price of Machine $100,000 $40,000 Both machines will be worthless at the end of their economic life. The machines have a CCA rate of 30%. EGWI is subject to a corporate tax rate of 40%. EGWI has obtained the following information for its analysis of various investments and financial proposals: Expected Covariance with Asset Return Variance Market Returns Risk free asset 0.03 Market Portfolio 0.08 0.02 EGWI Common Stock 0.028 EGWI, an all equity firm, has a market value of $2,000,000 a. What is EGWI's cost of capital? b. Which of the two machines should EGWI purchase? c. EGWI is considering the sale of $1,000,000 of 5% perpetual bonds and uses the proceeds to repurchase EGWI stock. If this plan is adopted: 1. What is the value of the firm with the new project included? 2. What is the value of the firm's equity with the new project included? Ellesmere Glass Works Inc. (EGWI) is considering the following two machines for manufacturing mirrors: SS Model DD Model Expected annual before tax cost savings $40,000 $35,000 Economic Life 10 years 5 years Price of Machine $100,000 $40,000 Both machines will be worthless at the end of their economic life. The machines have a CCA rate of 30%. EGWI is subject to a corporate tax rate of 40%. EGWI has obtained the following information for its analysis of various investments and financial proposals: Expected Covariance with Asset Return Variance Market Returns Risk free asset 0.03 Market Portfolio 0.08 0.02 EGWI Common Stock 0.028 EGWI, an all equity firm, has a market value of $2,000,000 a. What is EGWI's cost of capital? b. Which of the two machines should EGWI purchase? c. EGWI is considering the sale of $1,000,000 of 5% perpetual bonds and uses the proceeds to repurchase EGWI stock. If this plan is adopted: 1. What is the value of the firm with the new project included? 2. What is the value of the firm's equity with the new project included