Suppose Dhia has been hired as a financial consultant for PFG Manufacturing Inc. PFG Manufacturing is a large publicly traded firm that is the market share leader in food industry. The company is looking at setting up a food manufacturing plant overseas to produce halal food. This will be 7-year project. The company bought some land 2 years ago for RM 6.5 million in anticipation of using it as a toxic dump site for a waste chemical, but it builds a piping system to safely discard the chemical instead. The land was appraised last month for RM 12 million. PFG Manufacturing wants to build its new manufacturing plant on this land the plant will cost RM 15 million to build. The following market data on PFGs securities are current:

Debt: 10,000, 8 percent coupon bonds outstanding, 20 years to maturity, selling for 94 percent of par; the bonds have a RM1,000 par value each and make semi-annual payments

Common stock: 150,000 shares outstanding, selling for RM80 per share; the beta is 1.7 Preferred stock: 15,000 shares of 6 percent preferred stock outstanding, selling for RM 65 per share.

Market: 7 percent expected market risk premium; 6 percent risk-free rate.

PFG uses GH & Sons as its lead underwriter. GH & Sons charges PFG spreads of 8 percent on new common stock issues, 5 percent on new preferred stock issues, and 3 percent on new debt issues. GH & Sons has included all direct and indirect issuance costs (along with its profit) in setting these spreads. GH & Sons has recommended to PFG that it raise the fund needed to build the plant by issuing new shares of common stock. GH & Sons has recommended to PFG that it raise the fund needed to build the plant by issuing new shares of common stock. PFGs tax rate is 35 percent. The project requires RM850,000 in initial net working capital investment to get operational.

a) PFG Manufacturing Inc will incur RM 380,000 in annual fixed costs. The plan is to manufacture 14,000 halal food per year and sell them at RM 10,000 per bulk of halal food; the variable production cost is RM 8,500 per bulk of halal food. What is the annual operating cash flow, OCF, from this project?

b) Finally, PFG Manufacturings president wants Dhia to throw all her calculations, assumptions, and everything else into the report for the chief financial officer; all he wants to know is what the PFG projects internal rate of return, IRR, and net present value, NPV are. What Dhia will report?