Home assignment 5 This is a comprehensive project evaluation problem bringing together much of what you have learned so far. Company ABC is a large publicly traded firm, a market leader in producing self- driving agricultural machines. The company is looking at setting up a manufacturing plant overseas to produce a new line of self-driving tractors. This will be a four-year project. The plant and equipment will cost $100 milion to build. The market data on ABC's securities is following: 550,000 5.6 percent coupon bonds outstanding, 20 years to maturity, selling for 108 percent of par; the bonds have a $1,000 par value each and make semiannual payments. Common stock: 22,000,000 shares outstanding, selling for $56 per share; the beta is 1.1. Market: 7 percent expected market risk premium; 3 percent risk-free rate. ABC faces 8 percent floatation costs of new common stock issues and 4 percent on new debt issues. ABC's tax rate is 35 percent. The project requires $5,5 million in initial net working capital investment to get operational (in years 1-3 investment in NWC is zero and in Year 4 $5,5 million is recovered) a. Calculate the weighted average of floatation costs and use this to adjust your initial investment. b. The new project is somewhat riskier than a typical project for ABC, primarily because the plant is being located overseas. Management has decided to use adjustment factor of +2 percent to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating ABC's project (start by calculating WACC)