Spice Corporation is considering replacing its manufacturing facilities to increase production efficiency in order to reduce production costs. In the past year, it has spent $30,000 in attending various overseas trade shows with the aim to source for the most suitable manufacturing facilities. The following are the information relating to the company's existing manufacturing facilities and the new facilities that it is considering: Existing Manufacturing Facilities Current book value: $3,000,000 Annual depreciation: $400,000 Current selling price (if existing facilities are replaced): $2,500,000 Estimated salvage value 5 years from now (if existing facilities are not replaced): $1,500,000 Annual maintenance cost: $600,000 New Manufacturing Facilities Price: $5,000,000 Annual depreciation: $1,000,000 Useful life: 5 years Estimated salvage value 5 years from now: $800,000 Annual maintenance cost: $100,000 Spice Corporation's marginal cost of debt is 10%, and beta of its common stock is 1.5. Market risk premium is 8% and the risk-free rate is 3%. Spice's current capital structure is 30% debt and 70% common equity, but going forward, its target capital structure is expected to be 50% debt and 50% common equity. The applicable corporate tax rate is 30%. (a) What is the WACC of Spice Corporation for evaluating this project? (3 marks) (b) What is the initial cash flow (at Year 0) if Spice Corporation replaces its existing facilities with the new one? (3 marks) (c) Should Spice Corporation replace its existing manufacturing facilities with the new one? (Show appropriate calculations.) (9 marks)