suppose you have been hired as a financial consultant to defense electronics Inc., a large, publicly traded firm that is the market share leader in radar detection systems. 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 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 $7.73 million after taxes. in five years, the land will be worth $8.03 million after taxes. The company wants to build its new manufacturing plant on this land; the plant will cost $13.52 million to build. The following market data on DEI's security are current:

Debt: 92,600 7.1 percent coupon bonds outstanding, 25 years to maturity, selling for 93.7% of par; the bonds have a $1000 par value each and make semi annual payments.

Common Stock: 1,740,000 shares outstanding, selling for $95.30 per share; the beta is 1.16

Preferred Stock: 82,000 shares of 6.35 percent preferred stock outstanding, selling for $93.30 per share.

Market: 6.8% expected market risk premium; 5.15% risk-free rate.

DEI's tax rate is 23%. The project requires $890,000 in initial networking capital investment to get operational.

a) calculate the projects time zero cash flow, taking into account all side effects. Assume that any NWC raised does not require flotation cost.

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 +1% to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating DEI's project.

c) The manufacturing plant has an eight year tax life, and DEI uses straight line depreciation. At the end of the project, the plant can be scrapped for $1.63 million. What is the after-tax salvage value of this manufacturing plant?

d) The company will incur $2,430,000 in annual fixed cost. The plan is to manufacture 14,300 RDSs Per year and sell them at $11,700 per machine; the variable production costs are $10,900 per RDS. What is the annual operating cash flow, OCF, from this project?

e) calculate the projects net present value.

f) calculate the projects internal rate of return.