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 $3.9 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 appralsed last week for $4.1 million on an aftertax basis In five years, the aftertax value of the land will be $4.4 million, but the company expects to keep the land for a future project. The company wants to bulld its new manufacturing plant on this land; the plant and equipment will cost $37 milmon to bulld. The following market data on DEI's secunties are current: Debt 205,000 bonds with a coupon rate of 5.8 percent outstanding, 25 years to maturity, selling for 106 percent of par, the bonds have a $1.000 par value each and make semiannual payments. Common stock - 8,600,000 shares outstanding, selling for $67 per share; the beta is 115 Preferred slock 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 premlum, 31 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 DEl that it raise the funds needed to bulld the plant by issuing new shares of common stock. DEF's tax rate is 25 percent. The project requires $1.5million in initial net working capital Investment to get operational. Assume DEI rases all equity for new projects externally and that the NWC does not requires fotation costs a. Calculate the project's initial Time 0 cash fow, taking into account al side effects. (A negatlve answer should be indicated by a minus sign. Do not round Intermediate celculotions and enter your answer in dollers, not millions, rounded to the nearest whole number, e.g., 1,234,567.) b. The new RDS project is samewhat riskler than a typical project for DEl, primarliy because the plant is being located overseas. Management has told you to use an adjustment factor of +2 percent to account for this increased riskiness Calculate the appropriate discount rate to use when evaluating DEl's project. (Do not round Intermedlete calculetions and enter your answer os a percent rounded to 2 decimal pleces, e.9. 32.16.) c. The manufacturing plant has an elght-year tax life, and DEi uses straight-ine depreciation to a zero salvage value. At the end of the project that is, the end of Year 5), the plant and equipment con be scrapped for $49 milion. What is the afrertax salvage value of this piant and equipment? (Do not round Intermediate calculations and enter your enswer in dollors, not mililons, rounded to the neorest whole number, e.g., 1,234,567.) d. The company will incur $6.9 mation in annual fixed costs. The pion is to manufacture 8.500 RDS5 per year and sell them at $13.450 per machine, the varable prodactoo costs are $10600 per RDS. What is the annua e. DEl's comptroller is primarlly interested in the Impact of DEl's Investments on the bottom line of reported accounting statements. What will you tell her is the accounting break-even quantity of RDSs sold for this project? (Do not round intermedlate calculations and round your answer to nearest whole number, e.g., 32.) f. Finally, DEl's president wants you to throw all your calculations, assumptions, and everything else into the report for the chlef financlal officer; all he wants to know is what the RDS project's internal rate of return (IRR) and net present value (NPV) are. (Do not round Intermedlate calculations. Enter your IRR as a percent rounded to 2 decimal places, e.g., 32.16. Enter your NPV In dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) 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 $3.9 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 appralsed last week for $4.1 million on an aftertax basis In five years, the aftertax value of the land will be $4.4 million, but the company expects to keep the land for a future project. The company wants to bulld its new manufacturing plant on this land; the plant and equipment will cost $37 milmon to bulld. The following market data on DEI's secunties are current: Debt 205,000 bonds with a coupon rate of 5.8 percent outstanding, 25 years to maturity, selling for 106 percent of par, the bonds have a $1.000 par value each and make semiannual payments. Common stock - 8,600,000 shares outstanding, selling for $67 per share; the beta is 115 Preferred slock 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 premlum, 31 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 DEl that it raise the funds needed to bulld the plant by issuing new shares of common stock. DEF's tax rate is 25 percent. The project requires $1.5million in initial net working capital Investment to get operational. Assume DEI rases all equity for new projects externally and that the NWC does not requires fotation costs a. Calculate the project's initial Time 0 cash fow, taking into account al side effects. (A negatlve answer should be indicated by a minus sign. Do not round Intermediate celculotions and enter your answer in dollers, not millions, rounded to the nearest whole number, e.g., 1,234,567.) b. The new RDS project is samewhat riskler than a typical project for DEl, primarliy because the plant is being located overseas. Management has told you to use an adjustment factor of +2 percent to account for this increased riskiness Calculate the appropriate discount rate to use when evaluating DEl's project. (Do not round Intermedlete calculetions and enter your answer os a percent rounded to 2 decimal pleces, e.9. 32.16.) c. The manufacturing plant has an elght-year tax life, and DEi uses straight-ine depreciation to a zero salvage value. At the end of the project that is, the end of Year 5), the plant and equipment con be scrapped for $49 milion. What is the afrertax salvage value of this piant and equipment? (Do not round Intermediate calculations and enter your enswer in dollors, not mililons, rounded to the neorest whole number, e.g., 1,234,567.) d. The company will incur $6.9 mation in annual fixed costs. The pion is to manufacture 8.500 RDS5 per year and sell them at $13.450 per machine, the varable prodactoo costs are $10600 per RDS. What is the annua e. DEl's comptroller is primarlly interested in the Impact of DEl's Investments on the bottom line of reported accounting statements. What will you tell her is the accounting break-even quantity of RDSs sold for this project? (Do not round intermedlate calculations and round your answer to nearest whole number, e.g., 32.) f. Finally, DEl's president wants you to throw all your calculations, assumptions, and everything else into the report for the chlef financlal officer; all he wants to know is what the RDS project's internal rate of return (IRR) and net present value (NPV) are. (Do not round Intermedlate calculations. Enter your IRR as a percent rounded to 2 decimal places, e.g., 32.16. Enter your NPV In dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)