You are planning a major product expansion. To implement this strategy, you will need to build a new plant in Newark. You estimate that the cost of the plant and equipment is $200 million. You expect annual sales of $75 million for 25 years. Costs are expected to be 60% of sales. Assume straight line depreciation and that the salvage value of the plant at time 25 is zero. Accounts Receivable is 35% of next year sales. Cash is 10% of next year sales. Inventory is 15% of next years sales. Accounts Payable is 30% of next years sales. Your tax rate is 34%. Your balance sheet information is as follows:CapitalStructureBookValueCouponRate# of unitsPrice perUnitMaturityBonds$100 million5%100,000$1,05010 yearsDebentures$200 million6%200,000$1,00011 yearsSubordinated Debentures$100 million7%100,000$95012 yearsCommon Stock$400 million15 million$50Retained Earnings$600 millionAssume that the beta of the common stock is .8 and the market risk premium is 9%. Assume that the risk free rate is 3%. Assume that all interest payments are made annually. Determine the NPV and IRR of the project. Would you expand?

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