1.Ember is considering an investment of $40 million in plant and machinery. This is expected to produce free cash flows of $13 million in year

1.Ember is considering an investment of $40 million in plant and machinery. This is expected to produce free cash flows of $13 million in year 1, $14 million in year 2, $15 million in year 3, and 25 million in year 4. The tax rate is 35%. You don’t know the target capital structure, but you do have the following information: · Bonds: There are 37,000 bonds with a 5.5% coupon outstanding. The coupons are paid annually. The bonds have a 1000 face value and 8 years to maturity. They sell for 96.7% of par. ·Retained Earnings (Internal Equity): There are 950,000 shares outstanding with a price of $55 per share. The beta on the stock is 1.25. The risk-free rate is 2% and the market risk premium is 6%. a) Calculate the weighted average cost of capital. Hint: To get the weights, you will need to solve for the market value of the debt and equity. b) Calculate the net present value (NPV) with the WACC.

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