You were hired to evaluate BB Inc's expansion project which is expected to produce $5.5 million of revenue per year for 6 years. Cash expenses will be $3 million, and depreciation expenses will be $1 million per year. The project also requires an expenditure of $500,000 for working capital to start (in year 0), and it will be recovered in the last year of the project. In addition, the firm's common stock has a beta of .95. The risk-free rate is 2.7 percent and the expected return on the market is 10 percent. The before-tax cost of debt is 7 percent, and the tax rate is 25 percent. Their capital structure consists of 55 percent debt and 45 percent common equity.

1. What is the yearly free cash flow on the project? Show all your work

2. What is the firm's WACC? Show all your work

3. Should the firm accept this project if it requires an initial investment of 10.2 million, Why or Why not? Explain. Show all your work.

4. Do you expect the expansion decision to change if the return on the market decreases to 7%? Why or why not? Explain.

Show all your work. Explain all your answers using the appropriate equations (not just calculator functions).