French Inc. hired you as a consultant to help decide on an expansion project. The project will produce $12 million of revenue per year for nine years. Cash expenses will be $5 million, and depreciation expenses will be $1 million per year. The project will increase net working capital by $70,000 and fixed assets by $200,000 during the year. The firm has a market value of outstanding debt of $17,850,000 and $28,475,000 in equity. The before-tax cost of debt is 8 percent, and the tax rate is 30 percent. The cost of equity is 11%.

A. What is the yearly free cash flow on the project? Show all your work.

B. What is the firms WACC? Show all your work.

C. Should the firm accept this project if it requires an initial investment of 25 million? Why or Why not? Explain. Show all your work.

D. Suppose the firm's before tax cost of debt increases to 12%. Will this to affect the expansion decision? Why or why not? Explain. Show all your work.