Problem 12-28 Project Evaluation (LO 3] Suppose you have been hired as a financial consultant to Defense Electronics, Inc (DEI). a large publicly traded firm that is the market share leader in radar detection systems (RDS) The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. This will be a five-year project. The company bought some land three years ago for $7.3 million in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. If the land were sold today, the net proceeds would be $78 million after taxes In five years, the land will be worth $8.1 million after taxes. The company wants to build its new manufacturing plant on this land, the plant will cost $13.8 million to build. The following market data on DEI's securities are current Debt 94,000 6.8 percent coupon bonds outstanding, 27 years to maturity. selling for 93.0 percent of par, the bonds have a $1,000 par value each and make semiannual payments. Common stock 1,880,000 shares outstanding, selling for $96.00 per share the beta is 109. Preferred stock 89,000 shares of 6.25 percent preferred stock outstanding, selling for $94.00 per share Market 72 percent expected market risk premium, 5.15 percent risk-free rate DEl's tax rate is 25 percent. The project requires $925,000 in initial networking capital investment to get operational