The Great Northern Wall Inc. manufactures stone and ice blocks for large walls to keep out invaders. The company is considering the purchase of a new machine (Project 1): The cost of the machine is $1,200,000. Machine will be depreciated straight-line over 10 years to zero book value. The company will use the machine for only 5 years and sell it for $250,000 (at the end of year 5) The company expects revenue of $550,000 in the 1st year, growing by 5% per year. Cost is 60% of sales. Paid a marketing consultant $50,000 for advice on potential campaigns. (Catchy Ad based on "The Winter is Coming") Tax rate is 30% Cost of capital or WACC is 14% a. Assume cash flows occur at the end of the year. What is the NPV of (Project 1)? Should we go ahead with the project? b. The Company is considering another project using volcanic or dragon glass (Project 2). This requires an investment of $300,000 but has a constant annual positive cash flow of $$210,000 over the same 5 years. Calculate the NPV and IRR for both projects 1 & 2. Which project would you choose if your capital investment budget was limited to $1.4 mil, and you had no other investment projects on the horizon? And why. c. A sketchy black-market trader (Iron Born) offers you a deal. An egg, when hatched, will grow into a full dragon you can rent out for various purposes. After running the numbers, you see that the IRR on (Project 3) is 13% (just below the WACC). The company's debt cost is 8%, and equity cost is 20%. It has 41.7% debt and 58.3% equity. What specific changes are needed in its capital structure to make Project 3 viable? [Hint: think WACC]. d. There is news of a coming war. The exiled daughter of the last king is rumored to be gathering an army to reclaim the throne. With the war jitters, the cost of capital is very volatile. You ask your treasurer (or the Master of Coin) to calculate the discount rate where the NPV of Project 1 would be zero. Calculate this discount rate (or cost of capital).