Question $27$

$10$ pts

You were hired as a consultant to Chase LLC which is considering taking a project that will produce $$7\mathrm{.}5$ million of revenue per year for eight years. Cash expenses will be $$3\mathrm{.}5$ million, and depreciation expenses will be $$1\mathrm{.}3$ million per year. If the firm takes that project, then it will reduce the cash revenues of an existing project by $$0,8$ million. You were also told that Chase's target capital structure is $35$ percent debt, $20$ percent preferred, and $45$ percent common equity. The cost of debt is $4$ percent, the cost of preferred is $11$ percent, and the cost of common equity is $9$ percent. Chase uses a $25$ percent marginal tax rate

What is the yearly free cash flow on the project? Show all your work

What is the firm's WACC? Show all your work

Should the firm accept this project if it requires an initial investment of $10$ million? Why or Why not? Explain. Show all your work

What is the profitability index of this project? Show all your work.

Suppose the firm decides to shift its capital structure in favor of more debt and less equity. Specifically, suppose it switches to $60\%$ debt, $10\%$ preferred and $30\%$ common equity. How should this affect their decision to accept the project if any? Why? Or why not? Show all your work