Suppose you have been hired as a financial consultant to Defense Electronics, Incorporated (DEI), a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. This will be a five-year project. The company bought some land three years ago for $7.2 million in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. If the land were sold today, the net proceeds would be $7.68 million after taxes. In five years, the land will be worth $7.98 million after taxes. The company wants to build its new manufacturing plant on this land; the plant will cost $13.32 million to build. The following market data on DEIs securities are current:

Debt: 91,600 7.1 percent coupon bonds outstanding, 25 years to maturity, selling for 94.2 percent of par; the bonds have a $1,000 par value each and make semiannual payments. Common stock: 1,640,000 shares outstanding, selling for $94.80 per share; the beta is 1.28. Preferred stock: 77,000 shares of 6.35 percent preferred stock outstanding, selling for $92.80 per share. Market: 6.95 percent expected market risk premium; 4.85 percent risk-free rate.

DEIs tax rate is 23 percent. The project requires $865,000 in initial net working capital investment to get operational.

a)Calculate the projects Time 0 cash flow, taking into account all side effects. Assume that any NWC raised does not require floatation costs. Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.

b)The new RDS project is somewhat riskier than a typical project for DEI, primarily because the plant is being located overseas. Management has told you to use an adjustment factor of +2 percent to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating DEIs project. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.

c)The manufacturing plant has an eight-year tax life, and DEI uses straight-line depreciation. At the end of the project (i.e., the end of Year 5), the plant can be scrapped for $1.58 million. What is the aftertax salvage value of this manufacturing plant? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.

d)The company will incur $2,380,000 in annual fixed costs. The plan is to manufacture 13,800 RDSs per year and sell them at $11,200 per machine; the variable production costs are $10,400 per RDS. What is the annual operating cash flow, OCF, from this project? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.

e)Calculate the project's net present value. Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89

f)Calculate the project's internal rate of return. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.