Part 1: Project analysis Asterix products Inc. is considering selling a new Ground Proximity Warning System. They have spent 10 million over the last 4 years developing the GPWS. If the GPWS were to be put on the market, Asterix expects it to stay on the market for a total of 5 years. Asterix will need to acquire production equipment worth $42 million to produce GPWSs. Accountants at Asterix decided to use a straight-line depreciation method for all equipment, so that the book value by year 5 will be 0. The equipment is expected to sell for 12 million at the end of year 5. The selling price of the GPWS is 70,000 per system, and the variable cost to produce is 50,000 per system. The company will raise prices per year same as the inflation rate (estimated to be 2.5% per year), variable costs are also estimated to increase by 2.5% every year. The projected sales units are shown in the table below: sales (year sales (year sales (year sales (year sales (year State of probability of each economy Strong moderate state 1) 2) 3) 4) 5) 10% 350 403 463 532 612 grwoth mild recession recession 40% 250 275 303 333 366 40% 150 159 169 179 189 10% 50 52 53 55 56 The project requires an inventory storage that is equal to 20% of sales every year. Asterix's corporate tax rate is 40%. It has an equity beta of 1.4. The US treasury bond rate is 4%, and the S&P 500 recent historic return is 12%. Asterix's cost of debt is 7%, its debt-to-equity ratio (debt/equity) is 50% and will remain at 50% during the life of the project. Questions: 1. what is the cost of equity of Asterix? 2. what is the WACC of Asterix? 3. Setup the project cash flows in excel, and calculate the NPV of the project 4. Will the project increase the wealth of shareholders?