make semiannual payments.

Common $9,300,000$ shares outstanding. selling for $$71\mathrm{.}50$ per share; the beta is

stock. $1\mathrm{.}3.$

Preferred $455,000$ shares of $4\mathrm{.}7$ percent preferred stock outstanding. selling for

stock. $$81\mathrm{.}50$ per share; the stock has a par value of $$100.$

Market:

$6$ percent expected market risk premium; $3\mathrm{.}6$ percent risk$-$free rate.

DEI uses G$.$M$.$ Wharton as its lead underwriter. Wharton charges DEI spreads of $6$

percent on new common stock issues, $5$ percent on new preferred stock issues, and $4$

percent on new debt issues. Wharton has included all direct and indirect issuance costs

$($along with its profit$)$ in setting these spreads. Wharton has recommended to DEI that it

raise the funds needed to build the plant by issuing new shares of common stock. DEI's

tax rate is $25$ percent. The project requires $$1,425,000$ in initial net working capital

investment to get operational. Assume Wharton raises all equity for new projects

externally.

Calculate the project's initial Year $0$ cash flow, taking into account all side effects.

Assume that the net working capital will not require flotation costs. $($A negatlve

answer should be Indicated by a minus sign. Do not round Intermedlate

calculations and enter your answer in dollars, not millions of dollars, rounded to

the nearest whole number, e$.$g$.,1,234,567.)$

b$.$ The new RDS project is somewhat riskier than a typical project for DEI, primarily

because the plant is being located overseas. Management has told you to use an

adjustment factor of $1$ percent to account for this increased riskiness. Calculate the

appropriate discount rate to use when evaluating DEl's project. $($Do not round

Intermedlate caleulations and enter your answer os a percent rounded to $2$ decimal

ploces, e$.$g$.,32\mathrm{.}16.)$

c$.$ The manufacturing plant has an eight$-$year tax life, and DEI uses straight$-$line

depreciation. At the end of the project $($that is$,$ the end of Year $5),$ the plant and

equipment can be scrapped for $$5$ million. What is the aftertax salvage value of this

plant and equipment? $($Do not round Intermedlate calculations ond enter your

answer In dollors, not millions of dollars, rounded to the nearest whole number,

e$.$g$.,1,234,567.)$

d$.$ The company will incur $$7,300,000$ in annual fixed costs. The plan is to manufacture

$19,500$ RDSs per year and sell them at $$11,050$ per machine; the variable production

costs are $$9\mathrm{.}650$ per RDS$.$ What is the annual operating cash flow $($OCF$)$ from this

project? $($Do not round Intermedlate coleulatlons and enter your answer in dollors,

not millions of dollors, rounded to the nearest whole number, e$.$g$.,1,234,567.)$

e$.$ DEl's comptroller is primarily interested in the impact of DEl's investments on the

bottom line of reported accounting statements. What will you tell her is the accounting

break$-$even quantity of RDSs sold for this project? $($Do not round Intermedlate

caleulations and round your answer to the nearest whole number, e$.$g$.,32.)$

f$.$ Finally, DEl's president wants you to throw all your calculations, assumptions, and

everything else into the report for the chief financial officer; all he wants to know is

what the RDS project's internal rate of return $($IRR$)$ and net present value $($NPV$)$ are.

$($Do not round Intermedlate calculations. Enter your NPV onswer In dollars, not

millions of dollars, rounded to $2$ declmol ploces, e$.$g$.,1,234,367\mathrm{.}89.$ Enter your IRR

answer as a percent rounded to $2$ decimal ploces, e$.$g$.,32\mathrm{.}16.)$