Initial Investment: $1,000,000 (depreciated straight line to $100.000 at end of project). The plant can be sold for $100,000 at the end of the project.

Project Duration: 3 years. The company currently already owns the land where it wants to build the new plant, and it is currently valued at $50,000. The original price that the land was bought for equaled $40,000, 5 years ago, and the land can be sold for $80,000 at the end of the project.

The company expects to produce and sell 20,000 units per year. The selling price equals $39 per unit. The fixed costs are $40,000 and the variable cost per unit is $21. The investment in NWC at the start of the project amounts to $25,000 and will be recouped at the end of the project. The tax rate is 20%.

a) What is the project cash flow for Year 0?

b) What is the annual OCF from this project?

c) What is the ACFA for Year 5?

The capital structure of the company consists of debt, equity and preferred stock. Debt: $1,000,000 corporate bonds, currently trading at par and the coupon rate equals 3%. Common stock: 500,000 shares outstanding, selling for $2 per share, beta equals 1.58.

Preferred stock: 100,000 shares of preferred stock outstanding, currently selling for $1 per share. The preferred annual dividend equals $0.08 per share.

Market: 4.0 percent market risk premium and 1.1 percent risk-free rate. Assume the company's tax rate is 20 percent. The new project has higher risk than the overall company, thus, the project will be assigned a discount rate equal to the firm's WACC plus 2%.

d) What is the WACC based on the capital structure of the company?

e) What is the NPV of the project? f) What is your advice regarding this new project? Go or no go? Please explain your answer.