Mini Case: Nuke Beverage Inc. Corporation's Capital Structure and Investment Decision Background: Nuke Beverage Inc. is a beverage company founded in British Columbia (BC). It has carved out a distinct niche for itself in the beverage industry by providing a diverse array of alcoholic drinks infused with allnatural flavors. Presently, the board is contemplating an expansion of its product offerings to include organic juices and energy drinks. These ventures require a substantial amount of capital to commence product research and acquire new manufacturing facilities. At this moment, CEO and CFO need to provide recommendations to the board and assess the feasibility of the two investment projects. Capital Structure Analysis: Nuke's current capital structure consists of 50% equity and 50% debt. Its equity consists of 200,000 common shares. The company is considering whether to increase its debt-to-equity ratio to 60% debt and 40% equity, believing that this change could reduce the overall cost of capital. The company has 1.5 beta. Its 20 years bond is sold at $990 with 5% semi annual coupon rate. Additional Information: The corporate tax rate is 30%. Market premium is 10%. Risk free return rate is 4%. Investment Projects: Project A: This project involves finalizing R\&D and expanding production capacity for new product line , which is estimate to generate $1 million in annual cash flows for the next five years. The initial investment required for this project is $3 million and a salvage value of $750,000 by the end of year five. Project B: Project B requires diversifying into an energy drink. It is riskier as the company has non energy drink industry expertise. However, it has the potential to generate higher returns. It is expected to cost $4 million and produce cash flows of \$1.2 million annually for the next five years with no salvage value Questions: Calculate the company's the new WACC if Nuke changes its capital structure to 60% debt and 40% equity. Calculate the Net Present Value (NPV), IRR, Cash Payback and Discounted Cash Payback for both Project A and Project B using the new WACC. Provide a rationale for your investment recommendation