Glassrock, Inc. has financed its operations with $40 million in debt at an interest rate of 6% and $60 million in equity at an estimated cost of 12%. The company faces a 40% tax rate. The managers are considering investing in a project with a 4-year life that has the following free cash flows: Year 0 1 2 3 4 FCF -275,000 150,000 100,000 50,000 25,000

a. Estimate the companys WACC.

b. What is the NPV of the project?

c. What is the projects IRR?

d. What is the projects Payback period?

e. Should the project be accepted? Why?

f. Suppose the company paid back all of its debt, and its cost of equity was unaffected. Should the project be accepted?