john is the president of a consulting firm named Dye Optimalization from Intellectural Thinking (DO-IT). Suppose DO-IT is thinking about undertaking a project to expand its current business activities by creating an advisory business that will enable clients to benefit from distance learning coupled with interactive sessions.

DO-IT is a publicly traded company that has a stock price of

$24 per share with 2,000,000 shares outstanding. In addition, DO-IT has outstanding debt with a face value of $10,000,000 that is currently selling at a price of 120% with a yield of 6%.

The risk free rate currently is 3% and DO-IT's equity cost of capital is 12%. The DO-IT company is a profitable firm that pays a corporate tax rate of 25%.

john is considering a project that would require an immediate expenditure of $750,000 for equipment to expand its current business activities. This equipment would have a 3 year life with zero salvage value and zero disposal cost; and the equipment will be depreciated via the straight line depreciation method. Prior to considering depreciation expense and tax effects, the equipment itself will be responsible for generating additional gross profits of $475,000 annually for each of the 3 years of its useful life. Also, the project and equipment have no impact on net working capital.

Should DO-IT make the purchase? Be sure to show all your work and clearly put forth your thought process.