You have been hired as a financial consultant to Defense Electronics, Inc (DEI). The company is looking to set up a manufacturing plant overseas to produce a new product line. This will be a five-year project. The plant will be built on land already owned by DEI. That land could be sold today for $5.3 million. If the company pursues the project, the value of the land is projected to be $5.7 million in five years. The plant will cost $32 million to build and the project will require an initial net working capital investment of $1.3 million. This $32 million will be depreciated straight-line to zero over the five years of the project, but will be able to be scrapped for $3 million. The plant is expected to generate pre-tax “sales minus costs” each year of $12 million. The tax rate is 35%. Find WACC and use as the discount rate to find the NPV. You have the following information regarding the firms’ sources of financing:

-There are 230,000 7.2% coupon bonds outstanding with 25 years to maturity and a YTM of 6.8%.

-There are 8.8 million shares outstanding, selling for $71 per share. The beta is 1.1

-The market risk premium is 7% and the risk-free rate is 5%.