FSB Ltd has a new project under consideration which will cost $10,000,000. The project is expected to generate before-tax cash flows of $2,500,000 forever. FSB Ltd is currently operating at its target debt-to-equity ratio of 0.25.

The company wishes to raise the fund for the new project by a new issue of 20-year bonds with a yield to maturity of 9% p.a. (the flotation costs of the new debt would be 4% of the amount raised) and a new issue of ordinary shares priced $10 per share that will pay $1 after one year (D₁) and is expected to grow by 5% pa forever (the flotation costs of the new share issue would be 14% of the amount raised). The company tax rate is 30%.

1. Calculate FSB Ltds weighted average cost of capital (WACC). (Show answer as a percentage correct to 2 decimal places.)
2. Calculate the net present value (NPV) of the new project. (Show answer correct to 2 decimal places.)
3. Explain if FSB Ltd should accept the new project or not.