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 $6 million in anticipation of using it as a toxic dumps site for waste chemicals, but it built a piping system to safely discard the chemicals instead. The land was appraised last week for $4.25 million. The company wants to build its new manufacturing palnt on this land; the plant will cost $7.2 million to build. The following market data on DEI's securities are current:

Debt	10,000 8% coupon bonds outstanding, 15 years to maturity selling for 94% of par; the bonds have a $1,000 par value each and make semiannual payments.
Common stock	250,000 shares outstanding, selling for $65 per share; the beta is 1.3.
Preferred stock	10,000 shares of 7% preferred stock outstanding, selling for $81 per share
Market	8% expected market risk premium; 5.65% risk-free rate
Tax rate	DEI's tax rate is 34%.
Net working capital (initial)	$750,000

a. Calculate the project's Time 0 cash flow, taking into account all side effects. (PLEASE SHOW YOUR WORK OF HOW YOU OBTAIN OPPORTUNITY COST OF LAND AND COST OF PLANT)

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 adjusted factor of +2% 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 (i.e., the end of year 5), the plant can be scrapped for $2 million. What is the after-tax salvage value of this manufacturing plant?

d. The company will incur $900,000 in annual fixed costs. The plan is to manufacture 10,000 RDSs per year and sell them at $10,000 per machine; the variable production costs are $9,100 per RDS. What is the annual operating cash flow, OCF, from this project?

e. Finally, DEI's president wants you to throw all your calculations, all your assumptions, and everything else into a report for the CFO; all he wants to know is what the RDS project's internal rate of return, IRR, and net present value, NPV, are. What will you report?