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\mathrm{.}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 $$7\mathrm{.}66$ million after taxes. In five years, the land will be worth $$7\mathrm{.}96$ million after

taxes. The company wants to build its new manufacturing plant on this land; the plant will cost $$13\mathrm{.}24$ million to build. The following

market data on DEl's securities are current:

Debt: $91,2006\mathrm{.}9$ percent coupon bonds outstanding, $23$ years to

maturity, selling for $94\mathrm{.}4$ percent of par; the bonds have a

$$1,000$ par value each and make semiannual payments.

$1,600,000$ shares outstanding, selling for $$94\mathrm{.}60$ per share; the

beta is $1\mathrm{.}26.$

$75,000$ shares of $6\mathrm{.}25$ percent preferred stock outstanding,

selling for $$92\mathrm{.}60$ per share.

$6\mathrm{.}85$ percent expected market risk premium; $5\mathrm{.}15$ percent risk$-$free

rate.

DEl's tax rate is $21$ percent. The project requires $$855,000$ in initial net working capital investment to get operational.

a$.$ Calculate the project's 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 $+3$ percent to account for this increased riskiness. Calculate the

appropriate discount rate to use when evaluating DEl's project.

Note: Do not round intermediate calculations and enter your answer as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

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\mathrm{.}56$ 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 $$2,360,000$ in annual fixed costs. The plan is to manufacture $13,600$ RDSs per year and sell them at $$11,000$

per machine; the variable production costs are $$10,200$ 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$.,1,234,567\mathrm{.}89$

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$.,32\mathrm{.}16.$

Answer is complete but not entirely correct.