LPG Ltd. is considering a project to manufacture and sell sporting clothes and shoes, with an initial cost of $210million. The project is expected to generate after tax unlevered cash flow of $10million in its first year, $12 million in year 2, then growing thereafter at 3% each year, forever. The company pursues a target Debt- to-Equity (D/E) ratio of 1.5 :1 which it will maintain with the new project. LPG Ltd.'scurrent yield on its borrowings is 4.2% p.a. consistent with the industry average. To determine the discount rate for the new project, LPG Ltd. uses historical equity returns for companies in the sporting clothes industry to estimate Beta.

Industry average equity Beta

Industry average Debt-to-Equity (D/E)

Industry average cost of debt

LPG Ltd.'s and Industry's tax rate

1.39

100% (i.e. 1:1)

4.2% p.a. 30%

LPG Ltd. estimates a market risk premium of 6% p.a. and uses a risk free rate of

3%p.a. Assume all cash flows are at end of the relevant period. Calculate the NPV of the project using WACC method.