You own Student Inc. and are considering a capital budgeting proposal to make widgets. You estimate that the equipment to make the widgets would cost your company $50,000 (which you can depreciate straight line over the lifetime of the project, which is ten years) and that you can sell 15,000 units a year at $2 a unit. The salvage vale of the equipment is 0. The cost of making each widget would be $0.80 and the tax rate that you would face would be 20%. You also estimate that you will need to maintain an inventory at 25% of revenues for the period of the project and that you can salvage 80% of this working capital at the termination of the project. You decided to set up the equipment in your garage, which means you have to pay $2000/year to have your car garaged at a nearby private facility (Assume that you can deduct this cost for tax purposes). To estimate the discount rate for this project, you find that there are comparable firms being traded on the financial markets with the following (levered) betas:

Company	Debt-Equity ratio	Tax rate	Beta
ABC	0.50	0.2	1.3
XYZ	1.00	0.2	1.5

You use this information to find the bottom up beta for your project (i.e. using the average of your competitors). You expect to finance this project entirely with equity and the current T-Bill rate is 2.5% and the equity risk is 6.8%.

(a) What is the appropriate discount rate to use for this project?

(b) What is the after-tax operating cash flow each year for the lifetime of the project?

(c) What is the NPV of this project?