Suppose that your company is about to expand into three new sectors. It is going to open a division in the neighboring state where all three sectors will be present. They are also going to engage in a smaller project in the home state with only one new sector involved.

The cash flows for the projects are as follows:

New state project:

CF0	CF1	CF2	CF3	CF4	CF5
-10,000	2,000	2,500	3,500	3,500	3,500

Each of the three options of the home state project (same cash flows):

CF0	CF1	CF2	CF3	CF4	CF5
-1,000	200	250	350	350	350

Compute NPV for the projected new state division and three NPVs for the domestic project (one for each sector). The key in this calculation is a required return (R). Since those three projects are very new, one good way to compute R would be to get it from the financials of a company that is already in that sector (e.g. if you are adding neighborhood markets (like Walmart did a few years ago), you may use CVS for your calculations for that sector). Assume financing with debt and common equity only, no preferred. Use capital structure and YTM of existing debt either from Morningstar.com or estimate using balance sheet and income statement data. Assume the incremental tax rate is 40%.

You are less certain about the cost of equity, that is why you decide to use stock data of that sample company over the past 5 years, compute mean and standard deviation of returns and run Monte Carlo simulation 10,000 times to see what the return on equity might be. Plug those simulated numbers into required return (WACC) calculations and then into NPV calculations. Show the histogram and summary statistics for the range of possible NPV on the new state division project and on the three options for the home state expansion. Consider the new state project as a separate standalone enterprise. The three home state projects should be evaluated as mutually exclusive. Make a decision.