(45 points) XYZ Co is considering a major expansion program that has been proposed by the company's information technology group. To decide whether the company will undertake this major expansion project, the company paid McLindsay Co., a large consulting company, a fee of $2 million to calculate the costs and benefits of the program, but they will refund half of that cost back to XYZ if the company does not move forward with the project. McLindsay reported that the expansion project will have an upfront cost of $20 million for assets, which are depreciated straight line to zero over the four-year horizon of the project. The company does not need to invest in net working capital (i.e., NWC =0). McLindsay also expects that the program will generate an operating cash flow equal to $10 million the first year and will expand by 20% per year until the project is liquidated at the end of year four. The liquidation value from selling the equipment will be $4 million. You are an assistant to the CFO of the company and your first task is to advise XYZ whether the company should undertake the investment. The CFO has provided you with the following data, which he believes may be relevant to your task (all the market data are current). The firm's tax rate is 20%. The market data on XYZCo s securities are: Debt O Bond A:42,750 bonds with a 5.4% coupon rate, with 20 years to maturity selling at par. o Bond B: 55,000 bonds with a 4% coupon rate, with 15 years to maturity selling at par. Assume that both bonds have a par value of $1,000 and they make semiannual payments. Common stock 01,000,000 shares outstanding, selling for $95 per share; XYZ Co just paid a dividend of $4 per share and is expected to increase its future dividends at a constant rate of 5%. The firm's beta is 1.8 . Assume the risk-free rate is 2% and the market return is 8%. Answer the following questions and show all the formulas and calculations (if using a financial calculator show all the entries). a. (6 points) What is XYZ Co's cost of debt? b. (6 points) What is XYZ Co's cost of equity using the CAPM? c. (6 points) What is XYZCos cost of equity using the dividend growth model? d. (10 points) What is XYZ Co's cost of capital? (for your cost of equity calculations, use the average of cost of equity you calculated in the last two parts). e. (12 points) Find the cash flows from assets (CFFA) of the project and then compute the NPV of the project. Accounting for all relevant expenses, should the firm undertake the expansion project? f. (5 points) Suppose instead that (1) Bond A and Bond B are priced below par and (2) the common stock is selling for $142.50 per share and the last dividend paid was $6. Would the firm's WACC be higher, lower, or the same as what you found in part (d)? Explain