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 $7.3million 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 $77million after taxes. In five years, the land will be worth $8.07 million after taxes. The company wants to build its new manufacturing plant on this land, the plant will cost $13.68 million to build. The following market data on DEI's securities are current: DEI's tax rate is 22 percent. The project requires $910,000 in initial net working capital investment to get operational. 0. 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 dollors, e.g., 1,234,567. b. The new RDS project is somewhat riskler 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 riskiness. Calculate the appropriate discount rate to use when evaluating DEi's project. Note: Do not round intermediate colculations and enter your answer os o percent rounded to 2 decimal ploces, e.g., 32.16. c. The manufacturing plant has an eight-year tax life, and DEI uses straight-Aine depreciation. At the end of the project (l.e. the end of Year 5 ) the plant can be scrapped for $167 milion What is the aftertax salvane value of this manufacturing plant? d. The company will incur $2,470,000 in annual fixed costs. The plan is to manufacture 14,700 RDSs per year and sell them at $12,100 per machine; the variable production costs are $11,300 per RDS. What is the annual operating cash flow. OCF, from this project? Note: Do not round intermediate colculations and enter your onswer in dollars, not millions 5 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., 1,234,567.89 f. Calculate the project's internal rate of return. Note: Do not round intermediate calculations and enter your answer os a percent rounded to 2 decimal places, e.g., 32.16
