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 75 million after taxes In five years, the land will be worth $8 05 million after taxes The company wants to build its new manufacturing plant on this land the plant will cost $13 6 million to build The following market data on DEIs securities are current Debt 46,500 6 8 percent coupon bonds outstanding, 20 years to maturity, selling for 93 5 percent of par the bonds have a $1,000 par value each and make semiannual payments Common stock 765,000 shares outstanding, selling for $95 50 per share the beta is 1 14 Preferred stock 36,500 shares of 6 2 percent preferred stock outstanding, selling for $93 50 per share Market 7 percent expected market risk premium 5 2 percent risk free rate DEIs tax rate is 35 percent The project requires $900,000 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 (Do not round intermediate calculations Negative amount should be indicated by a minus sign Enter your answer in dollars, not millions of dollars (e g , 1,234,567) ) 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 2 percent to account for this increased riskiness Calculate the appropriate discount rate to use when evaluating DEI's project (Do not round intermediate calculations Enter your answer as a percentage rounded to 2 decimal places (e g , 32 16) ) Discount rate

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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

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 $7.75 million after taxes. In five years, the land will be worth $8.05 million after taxes. The company wants to build its new manufacturing plant on this land; the plant will cost $13.6 million to build. The following market data on DEIs securities are current:

Debt:	46,500 6.8 percent coupon bonds outstanding, 20 years to maturity, selling for 93.5 percent of par; the bonds have a $1,000 par value each and make semiannual payments.

Common stock:	765,000 shares outstanding, selling for $95.50 per share; the beta is 1.14.

Preferred stock:	36,500 shares of 6.2 percent preferred stock outstanding, selling for $93.50 per share.

Market:	7 percent expected market risk premium; 5.2 percent risk-free rate.

DEIs tax rate is 35 percent. The project requires $900,000 in initial net working capital investment to get operational.

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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. (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).) 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 +2 percent to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating DEI's project. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Discount rate