Totty Company is considering the following project to produce a product.

Year	After-tax Cash Flow in $
0	-100.000
1	33.950
2	33.850
3	33.950
4	33.450

The management believes if the company delays taking the project one year to compile additional information about the market (the company has the option to delay), the cash inflow will be 43,500 per year. However, the initial cash outflow will increase by 14 percent. The company has enough retained earnings to take this project no matter when. The Company beta coefficient is 1.13, the return on risk-free security is 2.81 percent, and the average return on S&P 500 is estimated to be 11.23 percent.

a. Compute NPV of the project if the company takes the project today. Show your work.

b. Compute NPV if the company takes the project next year. Show your work.

c. What is the value of the option to delay? Should the company delay the project for the next year? Justify your suggestion in writing.

Problem3(2 points)

Novanta Company (NC) has only bond and equity in its capital structure. The company has 100,000 common stocks outstanding and just paid $4 per share dividends. The dividends are expected to grow at a constant rate of 5 percent per year forever. The required rate of return on equity is 9.14 percent. The company also has bond issues with a total face value of $18,000,000, where each bond has a face value of $1,000. The bonds are selling at 112 percent of the face value.

What is the market value of debt in NC's capital structure? What is the market value of equity in NC's capital structure?

Show your work.