PROBLEM Hill Micro Devices Inc. (HMD) is planning to build a new plant to manufacture a small high performance PC. The plant will have a capacity of 10,000 units annually. HMD has the following information on the project: Let y = units, 39 = price per unit. Capacity cost is given by 50003;. Production costs are given by 10003;. Demand is given by p = 6, 000 .23}. The project will generate cash ows over a ve year period, and the plant will be depreciated to a zero salvage value using the straight-line method. At the end of the ve year period, the plant will have a zero market value. The project has a beta of 1.6. (10) [5] Suppose the term structure is at and the riskless rate is 12%. Sup- pose also that the rate of return on the market portfolio is 17%. What is the appropriate discount rate for the project? (a) 12%. (b) 17%. (c) need to know the company's debt-equity ratio in order to determine the company's cost of capital. (dl* 20%