You must analyze a potential new widget, the widgetometer.The widgetometer was developed for use in the general widgetry industry.Wally's marketing manager believes the company can sell the following number of widgetometers per year for the next five years.The price of the widgetometer is expected to be $2,300 per unit.

Year 1Year 2 Year 3Year 4 Year 5

Units60,00070,00080,00090,00080,000

After 5 years, the product will be obsolete.The required manufacturing equipment would cost $130,000,000 plus an additional $13,000,000 for shipping and installation.Accounts receivable and inventories would increase by $5,000,000 while current liabilities (accounts payable and accruals) would rise by $4,000,000.Variable costs would be 56% of sales revenues, fixed costs (exclusive of depreciation) would be $35,000,000 per year, and fixed assets would be depreciated using the straight line method over the their 5 year life.When production stops after 5 years, the equipment is expected to have a salvage value of $5,000,000.Wally's tax rate is 30%.

a.)Step 1 - WACC - Wally's plans to finance the project with 20% debt, 15% preferred stock, 40% retained earnings, and 25% newly issued equity.The company's cost of debt for six years is 4%, while the cost of preferred stock is estimated to be 7%.The company's cost of equity (retained earnings) is estimated to be 11%.Flotation costs for any new equity issued would be 12.5%.Calculate the WACC.Round the percentage to two decimal places.

b.)Step 1 - Preliminary Calculations - Construct a spreadsheet which outlines the required year 0 investments, the projected operating cash flows, the project termination cash flows, and the project's net cash flows.Compute the NPV, IRR, and MIRR and include these calculations in the spreadsheet.Would you recommend proceeding with this project?Explain.