STG is a trading firm with a focus on the technical industry. The estimated cost of the investment is $28 million. The investment is planned to last eight years, at which point its salvage value is anticipated to be no higher than $11.5 million. The business takes 18% annual depreciation using the diminishing value method. company is expecting a seven-year payback period for the project. The market data is provided below.

Debt $14,000,000, 4.25% coupon bonds outstanding with 20 years to maturity redeemable at par, selling for 97.5 per cent of par; the bonds have a $1000 par value each and make semi-annual coupon payments.

Equity 1,000,000 ordinary shares, selling for $26 per share

Non-redeemable Preference shares 1,000,000 shares (par value $ 10 per share) with 5.15% dividends (after taxes), selling for $14.35 per share

Additional Information: The companys tax rate is 28%. The project requires $ 4.75 million in initial net working capital at the beginning of the project. The company had been paying dividends to its ordinary shareholders consistently. Dividend information for the past five years is as follows:

Year (-5) ($) 0.66, Year (-4) ($) 0.69, Year (-3) ($) 0.74, Year (-2) ($) 0.76, Year (-1) ($) 0.80, Year (0) ($) 0.86

At the end of the year one,STG estimates that the investment will generate incremental revenueof$10.15 million.From that point forward, it is predicted that the revenue will increase by 1.5% yearly until the conclusion of the eighth year.

It is projected that the annual variable costs will represent 38% of the income every year.The project will have $1.25 million in yearly fixed expenses, including coupon payments to bondholders.

Required:

1. Determine weighted average cost of capital (WACC). Display all operations.

2. Make a suggestion regarding whether the STGshould move forward with this project. Give reasons for your recommendation, or a reason against it. Recommendations should be made using the following techniques. the following metrics: a) Net Present Value (NPV), b) Internal Rate of Return (IRR), c) Profitability Index (PI), d) Payback period, and e) Discounted Payback Period

3. What non-financial aspects STGshould take into account before making this choice?

Note: Calculate gain/loss on the sale of the machines, display the depreciation table, and round all solutions to the nearest two decimals. In the income statement, note any tax effects.