Heart Check is considering an investment of $$60$ million in equipment. The equipment will be depreciated to a zero$-$book value based on MACRS. It is in the $3-$year property class. The equipment will be sold at the end of $4$ years for $$5$ million $($there is no horizon value$).$ The investment will produce sales of $$45$ million in year $1$ and $$80$ million in year $2$ and grow by $6\%$ each year for the remaining two years. Cost of goods sold is $40\%$ of sales and does not include the depreciation expense. Fixed operating costs are $$4$ million in year $1$ and increase by $3\%$ each year for the remaining $3$ years. The tax rate is $25\%.$ Net operating working capital is $2\%$ of next year$$s sales.

a$.$ Heart Check has a target debt ratio $($debt$/$value$)$ of $\mathrm{.}30.$ The cost of debt is $8\%$ and the cost of equity is $20\%.$ Use the weighted average cost of capital $($WACC$)$ to find the net present value. Should Heart Check invest? Why or why not?

b$.$ Now you are told the project is riskier than the firm$$s average projects. How does this impact your decision?