This is a comprehensive project evaluation problem bringing together much of what you have learned so far. Company ABC is a large publicly traded firm, a market leader in producing self-driving agricultural machines. The company is looking at setting up a manufacturing plant overseas to produce a new line of self-driving tractors. This will be a four year project. The plant and equipment will cost $100 million to build. The market data on ABC's securities is following: Debt: 550,000 5.6 percent coupon bonds outstanding, 20 years to maturity, selling for 108 percent of par; the bonds have a $1,000 par value each and make semiannual payments. Common stock: 22,000,000 shares outstanding, selling for $56 per share; the beta is 1.1. Preferred stock: 1, 200,000 shares of 5 percent preferred stock outstanding, selling for $85 per share. Market: 7 percent expected market risk premium; 3 percent risk-free rate. ABC faces 8 percent floatation costs of new common stock issues, 6 percent on new preferred stock issues, and 4 percent on new debt issues. ABC s tax rate is 35 percent. The project requires $5, 5 million in initial net working capital investment to get operational. b. The new project is somewhat riskier than a typical project for ABC, primarily because the plant is being located overseas. Management has decided to use adjustment factor of +2 percent to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating ABC's project(start by calculating WACC). c. The manufacturing plant has a four-year tax life, and ABC uses straight-line depreciation. At the end of the project (that is, the end of Year 4), the plant and equipment can be scrapped for $20 million. What is the after tax salvage value of this plant and equipment? This is a comprehensive project evaluation problem bringing together much of what you have learned so far. Company ABC is a large publicly traded firm, a market leader in producing self-driving agricultural machines. The company is looking at setting up a manufacturing plant overseas to produce a new line of self-driving tractors. This will be a four year project. The plant and equipment will cost $100 million to build. The market data on ABC's securities is following: Debt: 550,000 5.6 percent coupon bonds outstanding, 20 years to maturity, selling for 108 percent of par; the bonds have a $1,000 par value each and make semiannual payments. Common stock: 22,000,000 shares outstanding, selling for $56 per share; the beta is 1.1. Preferred stock: 1, 200,000 shares of 5 percent preferred stock outstanding, selling for $85 per share. Market: 7 percent expected market risk premium; 3 percent risk-free rate. ABC faces 8 percent floatation costs of new common stock issues, 6 percent on new preferred stock issues, and 4 percent on new debt issues. ABC s tax rate is 35 percent. The project requires $5, 5 million in initial net working capital investment to get operational. b. The new project is somewhat riskier than a typical project for ABC, primarily because the plant is being located overseas. Management has decided to use adjustment factor of +2 percent to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating ABC's project(start by calculating WACC). c. The manufacturing plant has a four-year tax life, and ABC uses straight-line depreciation. At the end of the project (that is, the end of Year 4), the plant and equipment can be scrapped for $20 million. What is the after tax salvage value of this plant and equipment