good company is considering a project to start manufacturing cars for India market. The project requires an initial investment of 10 million and has a 5 years life. The yearly expected cash flows are given below: Year 1: 3,230,000 Year 2: 3,850,000 Year 3: 2,930,000 Year 4: 2,880,000 Year 5: 2,854,000 To fund this project, good company will raise 6 million of capital issuing bonds and the rest of the capital will be coming from issuing new common stocks. The company will issue bonds with 8% coupon, having 15 years maturity. To sell the issue, an average discount of 2% per bond needs to be offered. There is an associated flotation cost of 3% of the par value. The company has a beta of 1.1 and sells for $40 a share. The government short term security is yielding 4% and the market risk premium is 8%. good company is in the 35% tax bracket.

Required: a) Calculate Weighted Average cost of capital for good company. (10)

b) Decide if the project is feasible to take with respect to Net Present Value, Payback Period and Profitability Index capital budgeting techniques. [Assume the acceptable payback period is 4 years and the project is independent]