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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

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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 $7.2 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. If the land were sold today, the net proceeds would be $7.72 million after taxes. In five years, the land will be worth $8.02 million after taxes. The company wants to build its new manufacturing plant on this land; the plant will cost $13.48 miltion to build. The following market data on DEl's securities are current: DEI's tax rate is 22 percent. The project requires $885,000 in initial net working capital investment to get operational. a. 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 dollars, 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 +3 percent to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating DEr's project. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. c. The manufacturing plant has an eight-year tax life, and DEl uses straight-line depreciation. At the end of the project (i.e., the end of Year 5), the plant can be scrapped for $1.62 million. What is the aftertax salvage value of this manufacturing plant? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567. d. The company will incur $2,420,000 in annual fixed costs. The plan is to manufacture 14,200 RDSs per year and sell them at $11,600 per machine; the variable production costs are $10,800 per RDS. What is the annual operating cash flow, OCF, from this project? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567. - Calruilate the meniert's net nrecent ualise 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 as a percent rounded to 2 decimal places, e.g., 32.16 . 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 $7.2 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. If the land were sold today, the net proceeds would be $7.72 million after taxes. In five years, the land will be worth $8.02 million after taxes. The company wants to build its new manufacturing plant on this land; the plant will cost $13.48 miltion to build. The following market data on DEl's securities are current: DEI's tax rate is 22 percent. The project requires $885,000 in initial net working capital investment to get operational. a. 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 dollars, 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 +3 percent to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating DEr's project. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. c. The manufacturing plant has an eight-year tax life, and DEl uses straight-line depreciation. At the end of the project (i.e., the end of Year 5), the plant can be scrapped for $1.62 million. What is the aftertax salvage value of this manufacturing plant? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567. d. The company will incur $2,420,000 in annual fixed costs. The plan is to manufacture 14,200 RDSs per year and sell them at $11,600 per machine; the variable production costs are $10,800 per RDS. What is the annual operating cash flow, OCF, from this project? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567. - Calruilate the meniert's net nrecent ualise 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 as a percent rounded to 2 decimal places, e.g., 32.16

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