Sports EX Inc. is a Sports Shoes Company which is considering investing

in a new equipment for the production of a new line of Tennis and

Football Shoes for its elite customers. The new equipment will cost

$$250,000,$ and an additional $$80,000$ is needed for installation. The

equipment which falls into the MACRS $3-$yr class, would be sold after

three years for $$35,000.$

The equipment will generate additional annual revenues of $$210,000,$

and will have annual operating expenses of $$60,000.$ An inventory

investment of $$60,000$ is required during the life of the project.

Sports EX is in the $30$ percent tax bracket, and has the same risk as

the firm$$s existing assets.

The capital required for the project has been arranged as follows:

Debt: $1,0008\%,10-$year, semi$-$annual coupon bonds with a par value of

$$100,$ each selling for $90\%$ of its face value

Common stock: $2,500$ shares selling for $$96$ each with a beta of $1\mathrm{.}05.$

The market$$s rate of return is $11\%$ and risk$-$free investments offer a

$4\%$ return.

You are required to:

$1.$ Compute the after$-$tax cost of debt $(4$ marks$)$

$2.$ Compute the cost of common stock $(4$ marks$)$

$3.$ Compute the WACC $(5$ marks$)$

$4.$ Compute the initial outlay of the project $(3$ marks$)$

$5.$ Calculate the annual after$-$tax OCF for years $1-3(7$ marks$)$

$6.$ Determine the terminal cash flow for year $3(5$ marks$)$

$7.$ Determine the FCF for years $1-3(1$ mark$)$

$8.$ Compute the project$$s NPV $(3$ marks$)$

$9.$ Estimate the project$$s IRR $(2$ marks$)$

$10.$ Should the project be accepted? $(1$ mark$)$