Solera Inc. is looking at setting up a manufacturing plant in New York. This will be a 5-year project. The company bought the land in New York last year for $1 million in anticipation of using it as a warehouse. The land is now appraised for $1.2 million after-tax. In 5 years, the after-tax value of the land is estimated for $1.5 million.

The plant and equipment will cost $10 million after-tax to build and will be depreciated straight-line to zero over the project's 5-year life. To operate the plant and equipment, workers would have to go through a brief training session that would cost $200,000 after tax. In addition, it would cost $300,000 after-tax to install the equipment properly.

The plant and equipment will require the firm to increase account payables and inventory by $200,000, respectively, and decrease account receivables by $500,000. The plant will raise sales by $4 million annually and reduce production expenses by $1 million annually. The plant and equipment will be externally financed; and the flotation costs of debt and equity are estimated to be 5% and 10%, respectively. The equipment can be sold for $2 million (before-tax) at the end of the project life. Finally, the following market data on Solera Inc.s securities are current:

Common stock: Solera Inc's stock is selling for $350 a share and its number of stocks outstanding is 10 million shares. Solera Incs beta is 1.5; the expected rate of return on the market portfolio is 15%; and the T-bills yield 3%.

Debt: Solera Inc. issued a 20-year, 5.1085 percent, semiannual bond 5 years ago. The bonds currently sell for $750. The total number of bonds is 2 million.

(a) (20 points) What is the WACC for the project?

(b) (12 points) what is the initial cash outlay for this project?

(c) (5 points) what is the annual operating cash flow for the project?

(d) (8 points) what is the terminal cash flow for the project?

(e) (5 points) Does the company have to set up the plant?