Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of 2:3. It is considering building a new $4.5 million manufacturing facility. This new plant is expected to generate after-tax cash flow of $5.7 million of 8 years. The new project will be financed by:

1. A new issue of common stock. The beta () of the companys shares is 1.15. The expected market risk premium is 9% and the risk-free rate of interest is 4%.

2. A new issue of 20-year bonds that pay annual coupon rate of 9%, they will sell at par value.

Assume that PC has a 35% tax rate.

a. What is the cost of equity of PC by SML approach?

b. What is the after-tax cost of debt of PC?

c. If PC wants to maintain its target debt-equity after issuing new equity and debt, what is the WACC of PC?

d. The project manager of PC feels that the appropriate discount rate of the new project should be 3% above the WACC. What is the NPV of the new plant? Should PC build the new manufacturing facility? Explain.