Hurricane Corporation is considering a 4-year project by launching a new product, Storm, in the market. The company has previously spent $100,000 in an extensive market survey and the result of the survey has indicated a significant demand for Storm. The project requires $2 million investment in new assets, which will be depreciated $400,000 per year. The assets are expected to have a salvage value of $300,000 at the end of the project. The project will cause the accounts receivable of the company to increase by $60,000 and accounts payable to decrease by $40,000. Storm is also expected to cannibalize the company's existing products, and is likely to cause a reduction in net cash flows (after tax) of $100,000 per year from of the reduced sales of the existing products. Expected sales of Storm for the next 4 years are as follows: Year 1: $800,000 Year 2: $1,200,000 Year 3: $1,800,000 Year 4: $2,200,000 Variable cost is expected to be 40% of sales. Annual operating fixed cost (excluding depreciation cost) is $80,000. The company is expected to take up additional loans for the project which will result in annual interest cost of $20,000 per year. The company has 20 million common shares currently trading at $4 per share. The common shares has a beta of 1.3, and the market return and risk-free rate are 10% and 3% respectively. The company has 100,000 bonds currently trading at $849.89 per bond. The bonds have par value of $1,000 with coupon rate of 6% paid annually. The bonds still have 8 years to maturity. Going forward, the company expects to maintain its current capital structure. Corporate tax rate for Hurricane is 30%. Question 4 (continued) (a) What is Hurricane's weighed average cost of capital? (4 marks) (b) What are the cash flows for analyzing Hurricane's new project? (12 marks) (c) Should Hurricane undertake the product to launch Storm? (Justify your answer by showing appropriate computations.) (4 marks)