Suppose you have been hired as a financial consultant to Defegee Electronics, Incorporated $($DEI$),$ a large, publicly

traded firm that is the market share leader in radar detection systems $($RDSg$).$ The company is looking at setting up a

manufacturing plant overseas to produce a new line of BDSg$.$ This will be a five$-$year project. The company bought

some land three years ago for $$3\mathrm{.}9$ 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 $$4\mathrm{.}1$ million on an

aftertay basis. In five years, the aftertay value of the land will be $$4\mathrm{.}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 $$37$ million to build. The following market data on DEI's securities are current:

Debt: $,205,000$ bonds with a coupon rate of $5\mathrm{.}8$ percent outstanding, $25$ years to maturity, gelling for

$106$ percent of par; the bonds have a $$1,000$ par value each and make gemizarual payments.

Common stock: $,8,600,000$ shares outstanding, selling for $$67$ per share; the beta is $1\mathrm{.}15.$

Preferred stock: $,500,000$ shares of $4$ percent preferred stock outstanding, selling for $$83$ per share, and a par

value of $$100.$

Market: $,7$ percent expected market risk premium; $3\mathrm{.}1$ percent risk$-$ free rate.

DEI uses GM$.$ Wharton as its lead underwriter. Wharton charges DEI spreads of $7$ percent on new common stock

issues, $5$ percent on new preferred stock issues, and $3$ percent on new debt issues. Wharton has included all direct and

indirect issuance costs $($along with its profit$)$ in setting these spreads. Wharton has recommended to DEI that it raise

the funds needed to build the plant by issuing new shares of common stock. DEI's tax rate is $25$ percent. The project

requires $$1\mathrm{.}5$ million in initial net working capital investment to get operational Assume DEI raises all equity for

new projects externally and that the NWC does not requires flotation costs.

a$.$ Calculate the project's initial Time $0$ cash flow, taking into account all side effects. $($A negative answer should

be indicated by a minus sign. Do not round intermediate calculations and enter your answer in

dollars, not millions, rounded to the nearest whole number, 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 $+2$ percent to account for this

increased riskines$5.$ Calculate the appropriate discount rate to use when evaluating DEI's project. $($Do not

round intermediate calculations and enter your answer as a percent rounded to $2$ decimal places,

e$.$g$.$v $32\mathrm{.}16.)$

c$.$ The manufacturing plant has an eight$-$year tax life, and DEI uses straight$-$line depreciation to a zavo$-$salvage

value. At the end of the project $($that is$,$ the end of Year $5),$ the plant and equipment can be scrapped for $$4\mathrm{.}9$

million. What is the affegtas salvage value of this plant and equipment? $($Do not round intermediate

calculations and enter your answer in dollars, not millions, rounded to the nearest whole number,

e$.$g$.$v $1,234,567.$

d$.$ The company will incur $$6\mathrm{.}9$ million in annual fixed cost$5.$ The plan is to manufacture $8,500$ RDS$5$ per year and

gell them at $$13,450$ per machine; the variable production costs are $$10,600$ per RDS$.$ What is the annual

operating cash flow $($OCF$)$ from this project? $($Do not round intermediate calculations and enter your

answer in dollars, not millions, rounded to the nearest whole number, e$.$g$,1,234,567.)$

e$.$ DEI's comptroller is primarily interested in the impact of DEI's investments on the bottom line of reported

accounting statements. What will you tell her is the accounting break$-$even quantity of BDSs$,$ sold for this

project? $($Do not round intermediate calculations and round your answer to nearest whole

number, e$.$g$.,32.)$

f$.$ Finally, DEI's president wants you to throw all your calculations, assumptions, and everything else into the

report for the chief financial officer; all he wants to know is what the RDS project's intemal rate of retum $($IRR$)$

and net present value $($NPV$)$ are. $($Do not round intermediate calculations. Enter your IRR as a

percent rounded to $2$ decimal places, e$.$g$.32\mathrm{.}16.$ Enter your NPV in dollars, not millions of dollars,

rounded to $2$ decimal places, e$.$g$,1,234,567\mathrm{.}89.)$