The XYZ is a publicly traded company which produces sanitizers. The company wants to diversify its business into the production of the vaccine for a newly identified disease called VAC-2. To produce the vaccine, company has to invest in a new production facility. The new production facility will be built in the building already owned by the company and will enable XYZ to produce and sell the Vaccine at the drug stores in Canada. The manufacturing and marketing process is very different from their current line of business.

The management of XYZ has produced the following estimates about the new production facility and the cost of raising the capital:

• The purchase price of the machinery is $500,000 and the installation cost is $50,000.
• Company will produce the vaccine for 10 years. After 10 years, Company will scrap the machine and there will be no salvage value realized from the sale.
• The company has spent $2,000,000 on the research & development of the vaccine during last 2 years.
• A retail store company XCart offered $600,000 to buy the building where Company XYZ wants to build the production facility for vaccine.
• Let us assume that the machine is fully depreciated following straight line over 10 years. The firms tax rate is 35%.
• By selling the vaccines, XYZ expects to generate the additional revenue of $3,000,000 each year for the first 5 years and $1000,000 each year from year 6 to 10. Total additional Cost is expected to be 80% of the revenue.
• Company expects that the sale of Vaccine will reduce the sale of sanitizers by $500,000 for the first 5 years and by $400,000 from the year 6 to 10. Currently the cost of producing the sanitizers is 85% of the respective revenue. This cost structure is expected to remain same in future.
• XYZ recently raised $5,000,000 by issuing 10 years bonds at the price of $990 for the $1,000 face value paying 6% (annual rate) coupon at every 6 months.
• Total value of common stock is $3,000,000. The current stock price is $20
• Company recently paid a dividend of $2. The company is expected to maintain the dividend payout of 30% in the coming years.
• The Return on Equity is expected to be 10%.
• The data of the other vaccine producing companies is given here.

Vaccine Manufacturing Companies	Debt	Equity
J&C	$ 6,000,000	$ 4,000,000
MDRN	$ 7,000,000	$ 3,000,000
Glax	$ 3,000,000	$ 2,000,000

1. Calculate the WACC for the company using:
   1. Current capital structure
   2. Competitors average capital structure

2. What will be the appropriate capital structure for the analysis of Vaccine project and why?
3. What will be the NPV of Vaccine project? Should the company invest into the vaccine project according to NPV rule? show calculations also