Surpose you have been hired as a financials to Defense Electronics, Inc. (DEN a large publicly traded firm that is the market share leader in radar detection system (RDS). The y is looking ting up a manufacturing plant s to produce a new line of RDS This will be a five-year pot . The y how some and aree years ago for $45 million t o ng dump for waste chemicals, but it built a piping system to sally discard the chemicals instead. If the land were sold today, the net proceeds would be $55 million there in five years, the land will be worth $5.8 million after te . The y to build its new manufacturing plant on this land: the plan will cost $21.2 million to build The following market data on DE's securities are current: Debe 60,000 62 percent coupon bonds outstanding, 25 years to maturity, selling for 98 percent of par, the hands have a $1.000 par value each and make semanal payments Common stock 1,350,000 shares outstanding, selling for $97 per share the beta is 1.15. Preferred stock 90,000 shares of 5.7 percent preferred stock outstanding, par value of $100, selling for $95 per share Market 7 percent expected market risk premium: 3.8 percent risk-free rate. DEI's tax rate is 25 percent. The project requires $25,000 in initial networking 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. (A negative answer should be indicated by a minus sign. De not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e..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 +2 percent to account for this increased riskiness. 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... 32.16.) C. The manufacturing plant has an eight-year tax life, and Deluses straight line depreciation. At the end of the project(e, the end of year 5), the plant can be scrapped for $2.4 million. What is the alte tax salvage value of this manufacturing plant? (Do mot round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e., 1234,567.) d. The company will incur $3.6 million in annual fixed costs. The plan is to manufacture 13 SOO RDS per year and sell them at $10,000 per machine; the variable production costs are $9,900 per RDS. What is the annual operating cash flow, OCF, from this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e., 1,234,567.) Cakulate the net present value (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, eg, 1234,567.89.) Calculate the internal rate of retum. (Do not round intermediate calculations and enter your answer as a percent rounded to decimal places, e..32.16.) Time O cash flow Project discount rate Alertax salvage value Annual OCF NPV
