You have a project that on average is expected to generate positive cash flows starting next year (at t = 1­) of $150,000, growing at 10 percent per year for the foreseeable future.  Earnings per share is $5.00 and all earnings are paid as an annual dividend. The current priceis $40.00 per share.

a. What is the appropriate discount rate that should be applied to the cash flows of your project?

b. Given this discount rate, what is the present value of your project?

c. An analyst that works for you estimated that the cost of the project (incurred at t = 0) is $3,800,000. The project should be accepted or not? Why?