1. Your company is considering a new project, and you have the following information:

• Two years ago, the company paid $1,000,000 for the land and building that will house the project. The property could be sold for $3,000,000 today. Its book value is the purchase price.
• One year ago, the firm spent $100,000 on initial marketing for the project.
• The project requires the purchase of a machine (in year 0) for $500,000. The machine will be fully depreciated straight-line in years 1-5.
• The project will generate sales of $800,000 per year and expenses of $550,000 per year for years 1-5.
• The firm will pay $15,000 in interest on debt that will be used to fund the project.
• In year 1, the firm must increase its inventory by $25,000. It will maintain the new level of inventory through year 5.
• The marginal tax rate is 35%.

1. In your NPV calculation, what cash flow should you use for year 0?
2. In your NPV calculation, what cash flow should you use for year 1?

2. Finding WACC: A firm has $10 billion in debt, $40 billion in equity, and a tax rate of 35%. The pre-tax cost of debt and equity are 6% and 10%, respectively. What discount rate should it use for a typical project?