Johnson & Johnson is expanding the production of their Tylenol painkiller brand, looking to go into preventative self-care by focusing on healthy food. To enable the expansion, they are contemplating investing $1.7 billion in a new plant with an expected 10-year life. The anticipated free cash flows from the new plant would be $250 million in the first year of operation and grow by 10% for each of the next two years and 6% in the seven years afterwards. As a newly hired MBA in the capital budgeting division you have been asked to evaluate the new project. You will compute the appropriate costs of capital and net present value. First, lets assume the project has the same risk and capital structure of Johnson & Johnsons existing operations. Before you begin, download daily stock returns for Johnson & Johnson and the S&P 500. 1. Estimate the beta for Johnson & Johnsons equity. Show your calculations and explain how you obtained beta. 2. Go to the St. Louis Federal Reserve Economic Data (FRED) database: and look up the latest 10-year Treasury rate. 3. Go to Aswath Damodarans website and look up the latest US market risk premium (under Data Current Data Equity Risk Premium). 4. Estimate the expected return for Johnson & Johnsons equity using the CAPM. Show your calculations. 5. Approximate Johnson & Johnsons cost of debt by dividing the interest payments in their latest annual report by their debt (Long-Term Debt plus Loans and Notes Payable). Show your calculations. 6. Should you use market values of debt and equity to estimate the costs of capital, or book values of debt and equity? Explain. 7. Estimate the weighted average costs of capital of Johnson & Johnson.1 Show your calculations. 8. Assume the project has the same risk and capital structure as Johnson & Johnson. What is the NPV of the project?