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 $4.2 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. The land was appraised last week for $5.0 million. In five years, the aftertax value of the land will be $5.4 million, but the company expects to keep the land for a future project. The company wants to build its new manufacturing plant on this land; the plant and equipment will cost $31.76 million to build. The following market data on DEI debt is 227,000 at 7.4 percent for 25 years bonds sell for 109 par, par value is $1000 payments are semiannual, common stock is 8,500,000 selling for $70.70 per share, beta is 1.2 Preferred stock is 447,000 at 6 percent selling for $80.70 per share with par value of $100. market value of 8 percent expected risk , 6 percent risk free rate.

What is the initial time 0 cash flow. Networking capital will not contain flotation cost.

What is the IRR and NPV

Debt 227,000 7.4 percent coupon rate , 25 years to maturity, selling for 109 par, par value of $1,000, semiannual payments

8,500,000 shares outstanding selling for $70.70 per share, beta is 1.2

preferred stock is $447,000 shares of 6 percent selling for $80.70, par value of $100

market is 8 percent expected risk premium, 6 percent risk free rate

7 percent on new preferred stock issues, 5 percent on new debt issues, DEI's tax rate is 38 percent. The project requires 1,225,000in initial networking capital investment to get operational. Wharton raises all equity for new projects.