The Coffee Factory The Coffee Factory recently hired you as a financial analyst. One of your first assignments is to evaluate two different acquisitions the company is contemplating. The first acquisition, code named Project Kappa, would require your company to pay $1.750MM upfront and another payment to the sellers of $750,000 at the end of year 3. You estimate that after the acquisition you can sell an incremental 200.000 cups of coffee for an extra $2.50 per cup in additional free cashflow annually for the next 6 years. Because the equipment Project Kappa uses is so advanced, you expect to be able to sell it for $50.000 at the end of year 6. Project Omega would require your company to pay $558.000 upfront. You estimate that the cashflows from Project Omega would be $139,000,000 annually for the next 6 years, with $50,000 salvage value for its equipment. Your company, The Coffee Factory, currently has 8% annual coupon bonds outstanding that are due in 16 years and trade for $1,035 now. This is the company's only debt and The Coffee Factory's accountants estimate that to issue new bonds would cost $3.29 per bond in transaction costs. The Coffee Factory's existing common stock trades at $35 and the firm expects to increase last year's $2.50 dividend by 6% annually into the foreseeable future. The Coffee Factory's accountants estimate that to issue new common stock would cost $7.13 per share in transaction costs. The Coffee Factory's does not have preferred stock outstanding, its corporate tax rate is 34%, the risk free rate is 1.75%, the return on the market is 5.46% and its beta is 1.54. The Company desires to have a capital of 40% debt and 60% equity. 4. If the Company sets a payback period of 4 years, which project(s) should it accept? 5. What is the IRR for Project Kappa 6. What is the IRR for Project Omega? 7. What is the NPV for Project Kappa? 8. What is the NPV for Project Omega? 9. Which project if any The Coffee Factory should pursue using NPV