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 Ine of RDSs$.$ This will be a five$-$year project. The company bought some land three years ago for $$7\mathrm{.}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 $$7\mathrm{.}65$ million after taxes. In five years, the land will be worth $$7\mathrm{.}95$ million after

taxes. The company wants to build its new manufacturing plant on this land; the plant will cost $$13\mathrm{.}2$ million to build. The following

market data on DEl's securitles are current:

Debt:

$91,9006\mathrm{.}8$ percent coupon bonds outstanding, $27$ years to maturity,

selling for $94\mathrm{.}5$ percent of par; the bonds have a $$1,0$ par value each

and make semiannual payments.

$1,580,000$ shares outstanding, selling for $$94\mathrm{.}50$ per share; the beta is

Common stock:

$1\mathrm{.}25.$

$74,000$ shares of $6\mathrm{.}2$ percent preferred stock outstanding, selling for

$$92\mathrm{.}50$ per share.

$6\mathrm{.}8$ percent expected market risk premium; $5\mathrm{.}1$ percent risk$-$free rate.

DEl's tax rate is $25$ percent. The project requires $$850,000$ 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 ralsed does not require

floatation costs.

Note: A negatlve answer should be Indlcated by a minus sign. Do not round Intermedlate calculations and enter your answer in

dollars, not millions of dollars, e$.$g$.,1,234,567.$

b$.$ The new RDS project is somewhat riskler than a typical project for DEI, primarlly because the plant is belng located overseas.

Management has told you to use an adjustment factor of $+2$ percent to account for this increased riskiness. Calculate the

approprlate discount rate to use when evaluating DEl's project.

Note: Do not round Intermedlate calculations and enter your answer as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

c$.$ The manufacturing plant has an eight$-$year tax life, and DEI uses straight$-$IIne depreciation. At the end of the project $($I$.$e$.,$ the end of

Year $5),$ the plant can be scrapped for $$1\mathrm{.}55$ million. What is the aftertax salvage value of this manufacturing plant?

Note: Do not round intermedlate calculations and enter your answer In dollars, not millilons of dollars, e$.$g$.,1,234,567.$

d$.$ The company will Incur $$2,350,000$ in annual fixed costs. The plan is to manufacture $13,500$ RDSs per year and sell them at $$10,900$

per machine; the variable production costs are $$10,100$ per RDS$.$ What is the annual operating cash flow, OCF, from this project?

Note: Do not round Intermedlate calculations and enter your answer in dollars, not millions of dollars, e$.$g$.,1,234,567.$

e$.$ Calculate the project's net present value.

Note: Do not round Intermedlate calculations and enter your answer In dollars, not millions of dollars, rounded to $2$ decimal

places, e$.$g$.,1,234,567\mathrm{.}89$

f$.$ Calculate the project's internal rate of return.

Note: Do not round intermedlate calculations and enter your answer as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

Answer is not complete.