SolarCell Inc. is considering a $5-$year project to manufacture and sell solar$-$

powered self$-$inflating soccer balls for the $2028$ Olympics in Los Angeles.

SolarCell will need a new manufacturing facility and has identified a nearby vacant

factory that it can purchase for $$7,000,000.$ SolarCell will need to invest an

additional $$4,000,000$ to purchase manufacturing equipment and to retrofit the

factory building for its purposes. The factory and equipment falls into the $5-$year

MACRS class. At the end of the project, the factory building and equipment will

be sold for $$2,800,000.$ Sales of the balls are projected at $55,000$ units in the first

year and are expected to increase by $19\%$ each year, as the tournament nears. The

sales price and variable unit cost will be $$115$ and $$67,$ respectively. Annual fixed

costs should remain constant throughout the project at $$850,000.$ The project will

require an initial investment in inventory and other working capital of $$900,000.$

The corporate income tax rate is $21\%.$ SolarCell has $800,000$ shares of common

stock outstanding with a current share price of $$132.$ The beta on the common

stock is $1\mathrm{.}48.$ SolarCell just recently paid an annual dividend on the common stock

of $$7\mathrm{.}50/$sh$.$ These dividends are expected to grow indefinitely at $3\mathrm{.}50\%$ per year.

The Company has two series of bonds currently outstanding. The Series A are

$$50,000,000,8\mathrm{.}40\%,30-$year bonds that were issued $12$ years ago and pay interest

semi$-$annually. The YTM on the Series A bonds is currently $10\mathrm{.}12\%.$ The Series

B are $$35,000,000,6\mathrm{.}70\%$ bonds that mature in $5$ years and pay interest semi$-$

annually. The Series B bonds are currently selling at $91\mathrm{.}50\%$ of par. SolarCell

also has $15,000$ shares of $$1,000$ par value $8\mathrm{.}25\%$ preferred stock with a current

share price of $$935.$ The expected return on the market equity portfolio is $7\mathrm{.}40\%$

and Treasury securities are currently yielding $0\mathrm{.}50\%.$ SolarCell$$s CFO has

instructed his staff to estimate the Company$$s cost of equity capital based on the

average of the costs of equity indicated by the Dividend Growth Model and

CAPM. Should SolarCell take on this project?