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 $7 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 $7.79 million after taxes. In five years, the land will be worth $8.09 million after taxes. The company wants to build its new manufacturing plant on this land; the plant will cost $13.76 million to build. The following market data on DEI's securities are current: Debt: 46,900 7.2 percent coupon bonds outstanding, 18 years to maturity, selling for 93.1 percent of par; the bonds have a $1,000 par value each and make semiannual payments. Common stock: 769,000 shares outstanding, selling for $95.90 per share; the beta is 1.10. Preferred stock: 36,900 shares of 6.4 percent preferred stock outstanding, selling for $93.90 per share. Market: 7.2 percent expected market risk premium; 5.4 percent risk-free rate. DEI's tax rate is 40 percent. The project requires $920, 000 in initial net working capital investment to get operational. Requirement 1: Calculate the project's Time 0 cash flow, taking into account all side effects. Assume that any NWC raised does not require floatation costs. Initial Time 0 cash flow Requirement 2: 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 +3 percent to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating DEI's project. Discount rate