Texas Ex Distribution $($TEX$)$ is considering expanding into the Southeastern U$.$S$.,$ adding $40$centers to its fleet of $125.$ As the expansion is expected to significantly enhance both revenuesand costs, senior management is concerned about the profitability of such a major expansion. Asa result, you were recently hired to participate on a team under TEXs CFO that is responsible forevaluating the cash flows and profitability associated with this specific project $($beginning in thesummer of $2024).$

Initially, your team concludes that such a full$-$scale expansion would require an increase incapital expenditures of $$48,300,000.$ In addition, to accommodate increased cash and inventoryneeds, net working capital requirements are expected to rise by $$3,200,000$ so the new centerswill be operationally functional. The firm expects that $82\%$ of the increase in net working capitalwill be returned at the projects termination. The capital equipment is to be depreciated using a $5-$year Modified Accelerated Cost Recovery System $($MACRS$)$ schedule. Not knowing what thefuture holds, your team also concludes that this expansion will exist for $5$ years therebyfinishing in the summer of $2024.$

Adjustments to the companys operating cash flows are expected to begin in June of $2024$ when the centers are deemed fully operationally functional. Also, the capital equipment isexpected to have a market value of $$7,828,000$ at the projects termination

Last, your team makes the following assumptions regarding marginal increases in sales and costsfor TEX:

$1,640,000$ more units will be sold in years $1-2,$ generating on average $$22\mathrm{.}50$ per unit,while $1,725,000$ units will be sold in year $3-5$ at an average sales price of $$20\mathrm{.}50$ per unit.

$$ Total operating costs $($both fixed and variable$)$ are anticipated to be $58\%$ of sales inyears $1$ & $2$ and $53\%$ of sales in years $3-5.$

$$ TEXs marginal tax rate is $21\%($used in both deriving Operating Cash Flows as

well astax loss$/$gain in salvage value$).$Last, you assume that TEX will raise all of the capital to finance this project using a blend of debtand equity and intends to use the same capital structure to raise the funds for this expansion. As aresult, you base your cost of capital assumptions on the following:

$$ The firm currently has $3020$ bonds outstanding with the following terms: Remaining Maturity $=5$ years, Coupon Rate $=6\mathrm{.}80\%($semiannual pay$),$Current Price $=$ $$1040$

$$ The firm currently has $52,000$ common shares outstanding with the followingprice and market terms: Stock price $=$ $$42$; Beta $=\mathrm{.}95$; Rf Rate $=1\%$; ERm $=8\%$

$$ The firm currently has $38,000$ preferred shares outstanding with the followingterms: Share price $=$ $$83$; Dividend Rate $=3\mathrm{.}75\%$

In order to evaluate this project, answer the following questions in deriving a cash flow analysisand recommendation

$1.$ What is the initial cash outlay $($CF$0)$

$2.$ What are the operating cash flows in years $1$ thru $5-$ adjusted for taxes anddepreciation

$3.$ What are the terminal$-$year cash flows added to the operating cash flow in year $5?$

$4.$ What is the Weighted Average Cost of Capital, assuming you use existing capitalstructure?

$5.$ Given your results for CF$0$ thru C$05$ and the cost of capital, would you recommend thatthe company take$-$on this project? Compute and explain the significance of the NPV &IRR to support your answer.

$6.$ Judging the existing weights in TEXs capital structure, comment on how the firm mightlower its NPV and enhance its NPV and firm value by adjusting these weights. Whatcould be the good$/$bad consequences of such adjustments?