Should we proceed with this project?

Initial investment = $5,000,000 taxes = 35% Beta = 1.27 T-note = 2.4% Dividends paid = $1,000,000 with a payout rate of 33%

Estimated sales are: $2,500,000 for year 1,

$4,000,000 for year 2,

$7,500,000 for year 3,

$6,000,000 for years 4 & 5,

$4,500,000 for year 6;

$1,500,000 in year 7 with a sale of asset in year 7 for $250,000 VC = 52%, FC = $400,000 per year company's benchmark is the Wilshire 5000 which is expected to return 11% this year 250,000 shares of common stock quoted today at $25 paying a dividend of $1.20 per share 100,000 shares of preferred stock quoted today at $45 paying a dividend of $2.50 per share Company is paying on a 20 year, 4.75% loan issued 5 years ago with today's principal = $2,750,000

There are two bonds outstanding:

1) 2,000 20 year bonds issued 5 years ago with a coupon rate of 4.25% with today's market rate = 3.75%

2) 2,500 15-year bonds issued 3 years ago with a coupon rate of 3.88% with today's market rate = 3.6%

Company estimates its return on equity is 12%