The company XYZ has a stock price of $10 and 100,000 outstanding shares. The stock beta is 1.5. The market value of XYZs debt is $600,000. The debt consists of bonds with an annual yield to maturity (YTM) of 7%. The probability of default is 5% and in case of default, the expected loss rate is 40%. The corporate tax rate is 20%. In addition, assume that the expected market risk premium is 5% and that the risk-free interest rate is 0.5% per year.

XYZ is considering a new project that over the next three years will generate free cash flows of $100,000, $200,000 and $300,000, respectively, realized at the end of each year. Then the project will expire. The project carries the same risk as XYZs current business and will not affect the companys current capital structure. Implementing the project requires an upfront investment of $250,000. Question: Should the company implement the project?