Suppose you have been hired as a financial consultant To Defence Blectronics, Inc. De a large publicly traded firm that is the market share leader in radar detection systems RDS). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDS. This will be a five your project. The company bought come and three years ago for $72 milion in anticipation of using it as a tod 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 $7.68 million atterranes. In five years, the land will be worth $7.98 million after tases. The company wants to build its new manufacturing plant on this and the plant will cost $3 32 million to build. The following market data on Der securities are current Debt 91.600 71 percent coupon bonds outstanding, 25 years to maturty, selling for 942 percent of par, the bonds have a $1.000 par value each and make semiannual payments. Common stock 1640.000 shares outstanding, seling for $94.90 per share the beta is 128 Preferred stock 77000 shares of 6:35 percent preferred stock outstanding, calling for 592 80 per share Market 6.95 percent expected market risk premium: 485 percent risk-free Ders tax rate is 23 percent. The project requires $865,000 in initial networking capital investment to get operational a Calculate the project's Time O cash flow, taking into account all side effects. Assume that any NWC raised does not require floatation costs. (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, eg. 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 riskness 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. 3216) c. The manufacturing plant has an eight-year tax life, and DEl uses straight line depreciation. At the end of the projecte the end of Year 5. the plant can be scrapped for $158 million. What is the aftertax salvage value of this manufacturing plant? 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 $2,380,000 annual fixed costs. The plan is to manufacture 13,800 RDSs per year and sell them at $11.200 per machine the variable production costs are $10.400 per RDS. What is the annual operating cash flow. OCF, from this project? (Do not found intermediate calculations and enter your answer in dollars. not millions of dollars, c.9. 1.234,567) e. Calculate the project's not present value Do not found intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g. 1.234.56789) 1 Calculate the project's internal rate of retum (Do not found intermediate calculations and enter your answer as a percent rounded to 2 decimal places, eg. 32.16) Answer is not complete is 21.163.000 b Time Ocashow Discount Artasavage Opening cash fow NPV AR $ d 2.131350 7.0511 2004
