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Equity beta and WACC! please help urgently

Question 1 A division in a company is undertaking a new project. The parent company is an export driven manufacturing company. The division will be investing domestically in a repair based engineering project. The new project is less risky than the parent line of business. The parent company has 25% debt financing and a resultant equity beta of 1.15. The debt has a beta of 0.15. The project would be 40% debt funded, but the debt beta is estimated at 0.3. The company faces a tax rate of 30%, the risk-free rate of interest is 4.5% and the stock market equity risk premium is 6%. The project is not expected to exhibit the same level of risk as the parent company, the parent cash flows are expected to fluctuate by 1.25 times economic activity, whereas the project will only fluctuate by 0.95 times. With regard to operational gearing, the company's fixed cost base is 55% of cash flows and the project has a 41% fixed cost base. The project will need an initial investment of 31 million, and will last for six years. Of the 31 million, 28.5 million is for equipment that will be depreciated down to zero on a straight line basis. Of the remainder of the initial investment, 1.5m is for shipping and installation charges which will be capitalized; the remaining costs will be expensed straight away. The company will wind down the project up at the end of year 6 and expects to sell the equipment for 6 million. The revenues from the project are expected to be 8 million in the first year, rising to 10 million in the next year, after which they will grow at 15% for two years, and then they will remain constant. Operating costs are forecast to be 3.5m in the first year and the company is expecting these costs to rise by 0.25 million per annum through to the end of the project. Initial working capital of 2.5 million is needed and the net working capital requirements for each year after that are expected to be: 3.3m, 3.6m, 3.9m, 3.2m, 2.8m, and then falling to zero at the end of the last year. The new service will have a knock-on effect and increase revenues at other divisions within the company. These revenues are forecast to be in the order of 750,000 per annum for the duration of the project. Calculate the equity beta for the repair based engineering project and then calculate the WACC for the project. (6 marks) Lay out the cash flows and calculate the NPV. Should the company go ahead with the project? (8 marks) Question 1 A division in a company is undertaking a new project. The parent company is an export driven manufacturing company. The division will be investing domestically in a repair based engineering project. The new project is less risky than the parent line of business. The parent company has 25% debt financing and a resultant equity beta of 1.15. The debt has a beta of 0.15. The project would be 40% debt funded, but the debt beta is estimated at 0.3. The company faces a tax rate of 30%, the risk-free rate of interest is 4.5% and the stock market equity risk premium is 6%. The project is not expected to exhibit the same level of risk as the parent company, the parent cash flows are expected to fluctuate by 1.25 times economic activity, whereas the project will only fluctuate by 0.95 times. With regard to operational gearing, the company's fixed cost base is 55% of cash flows and the project has a 41% fixed cost base. The project will need an initial investment of 31 million, and will last for six years. Of the 31 million, 28.5 million is for equipment that will be depreciated down to zero on a straight line basis. Of the remainder of the initial investment, 1.5m is for shipping and installation charges which will be capitalized; the remaining costs will be expensed straight away. The company will wind down the project up at the end of year 6 and expects to sell the equipment for 6 million. The revenues from the project are expected to be 8 million in the first year, rising to 10 million in the next year, after which they will grow at 15% for two years, and then they will remain constant. Operating costs are forecast to be 3.5m in the first year and the company is expecting these costs to rise by 0.25 million per annum through to the end of the project. Initial working capital of 2.5 million is needed and the net working capital requirements for each year after that are expected to be: 3.3m, 3.6m, 3.9m, 3.2m, 2.8m, and then falling to zero at the end of the last year. The new service will have a knock-on effect and increase revenues at other divisions within the company. These revenues are forecast to be in the order of 750,000 per annum for the duration of the project. Calculate the equity beta for the repair based engineering project and then calculate the WACC for the project. (6 marks) Lay out the cash flows and calculate the NPV. Should the company go ahead with the project? (8 marks)