Suppose you have been hired as a financial consultant to Defense Electronics, Inc. (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 $4.5 million in anticipation of using it as a toxic dumpsite 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 $5 million after taxes. In five years, the land will be worth Page1 $5.3 million after taxes. The company wants to build its new manufacturing plant on this land; the plant will cost $15 million to build. The project requires $825,000 in initial net working capital investment to get operational. The following market data on DEI's securities are as follows: The preferred stock pays $5.80 dividend per share. DEI's tax rate is 34 percent. Required: a) Calculate the project's cash flows. See Note to file and Exhibit 1. Note to file: The DEIs financial manager, Samantha, had already started the analysis and some calculations. She transferred to another department on an emergency basis and could not complete this work. Here is her work-in-progress analysis, which are all accurate. Exhibit 1: Cash flow analysis Status: Complete Based on all the data given, Samantha has correctly determined the cash flows for the project to be: Year 0 1 2 3 4 5 Flow Cash $20,825,000 5,455,500 5,455,500 5,455,500 5,455,500 14,879,000 Page2 Exhibit 2 Capital structure: Market values Status: partially complete Capital structure Market value Cost (return) of security Debt 40,000 x $1,000 x .95 = $38 million 6.61% (Bond yield) Common Stock Preferred Stock