QUESTION FOUR Eco-Drink is a company which specialises in producing stainless steel drink bottles. The company is looking at ways of improving the existing products in terms of both quality and eco-friendliness. One of the project that the company considers requires an investment of $1.5m. The financial manager is now working with his team on reaching a decision. You as part of the finance department are assigned by the financial manager to do some tasks. The following information refers to the assumptions that the financial manager will use for his analysis. Year 0 Year 1-5 Investment 1,500,000 Revenue 740,000 Variable cost 300,000 Fixed cost 120,000 Depreciation 300,000 The company's debt-to-equity ratio is I, while the cost of equity is 13% per annum and cost of debt 5% per annum. Other information Investment is depreciated over 5 years straight-line. Corporate tax rate is 20%. Requirements a) Calculate the before-tax weighted average cost of capital. (6 marks) b) Calculate the after-tax weighted average cost of capital. (6 marks) c) Calculate the net present value of the project. (10 marks) d) The financial manager is proposing to change the debt-to-equity ratio to 2 with a cost of debt of 6% per annum. Under this change, calculate the revised after-tax weighted average cost of capital. (11 marks)