Reference no: EM132927891

Question - The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. This will be a five-year project. The company bought some land three Suppose you have been hired as a financial consultant to Defense Electronics, Inc. (DEI), a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). ago for $7 million in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. If the land were sold today, the net proceeds would be $7.61 million after taxes. In five years, the land will be worth $7.91 million after taxes. The company wants to build its new manufacturing plant on this land; the plant will cost $13.04 million to build. The following market data on DEI's securities are current:

Debt: 45,100 6.9 percent coupon bonds outstanding, 21 years to maturity, selling for 94.9 percent of par; the bonds have a $1,000 par value each and make semiannual payments.

Common stock: 751,000 shares outstanding, selling for $94.10 per share; the beta is 1.21.

Preferred stock: 35,100 shares of 6.25 percent preferred stock outstanding, selling for $92.10 per share.

Market: 7.05 percent expected market risk premium; 5.25 percent risk-free rate. DEI's tax rate is 34 percent.

The project requires $830,000 in initial net working capital investment to get operational.

Requirement - Calculate the net present value.