Reference no: EM132950915

The Rare Find Co. has the following information:

Debt outstanding: $450 million
The before-tax cost of debt: 5%
Market cap: $1,200 million
Cost of common stock: 10%
Tax rate: 21%

Rare Find is evaluating a project with the following information:

• Over the next five years, EBIT will equal 20 million each year
• An investment of $25 million is required in net working capital at the beginning of the project, which will be recovered at the end of the project.
• The cost of the equipment will be $80 million depreciated using straight-line to zero over the project's life, with no salvage value.
• The project requires an additional 2% risk premium above the firm's WACC.

Problem a. Calculate the risk-adjusted WACC for the firm. (Enter percentages as decimals and round to 4 decimals)

Problem b. Calculate the operating cash flows for the first year of the project. (Enter the full value, e.g. 5 million as 5,000,000)

Problem c. Calculate the net present value for the project. (Enter the full value, e.g. 5 million as 5,000,000 and round to 2 decimals)