Your company is looking at setting up a manufacturing plant overseas to manufacture driverless flying cars. The company bought some land in that country three years ago for $2.7 million. The land was just appraised for $3.8 million after tax. The proposed project will last five years. It is expected that you can sell the land at the end of 5 years for $4.1 million. The manufacturing plant will cost $34 million to build.

The following market data on your company are current.

Debt:187,000 bonds with a coupon rate of 6.3 percent outstanding, 25 years to maturity, selling for 108 percent of par; the bonds make semiannual payments.

Common Stock:8,100,000 shares outstanding, selling for $66 per share; the beta is 1.15.

Preferred Stock:4500,000 shares of 4.25 percent preferred stock outstanding, selling for $83 per share.

Market:7 percent expected market risk premium; 3.1 percent risk free rate.

Your underwriter tells you the floatation costs for common stock, preferred stock, and debt are 6%, 5%, and 3% respectively. They recommend you raise all needed funds for the project by issuing new debt because it has the lowest cost and will be even lower once you consider your corporate tax rate of 25%. The project requires $1.7 million in initial net working capital.

a)Calculate the project's initial Time 0 cash flow (CFFA) taking into account all side effects.

b)This project is riskier than the typical project that your company normally undertakes. You have been told to adjust the risk factor by +2 percent. Calculate the appropriate discount rate to use when evaluating this project.

c)Calculate the average cost of floatation.

d)The manufacturing plant uses a 5 years MACRS schedule for depreciation. At the end of the project (that is at the end of 5 years) the plant and equipment can be scrapped for $3.9 million. What is the after tax salvage value of this plant and equipment?

e)The company will incur $6.9 million in annual fixed costs. The plan is to manufacture 121 driverless flying cars per year and sell them for $1,505,000 each; the variable costs are $950,000 per unit. What is the annual operating cash flow (OCF) per year for the project?

f)What is the IRR and NPV of this project?