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Questions (20 marks) OmiDe Inc, a newly established pharmaceutical company foceg ce manufacturing curved-19 vaccines. The firm's current capital structure is made up only of commesteck (60%) and king-term debe (40%). The fim's financing cost for its debt before-tax) as 5% and its corporate income tax rate is 20% Market data relevant to OmiDel's common stock using CAP are as follows Beta (common stock) - 1.5, T-2% and market-risk peemi (a) Compate the WACC of Omlet Inc. 3 marks) b) Briefly explain what would happen to the following variables (metrics) ir WACC is used as the required return for a new project whose risk is lehetheverage risk) of the firm's existing projects. i) The project's NPV (1.5 marks) i) The chance of accepting / rejecting the project (1.5 marks) (c Suppose Omibel is currently considering building a new factory to increase its production capacity. The cash flows and information related to the project are summarized as follows: The new factory, which is expected to have an epic life of 10 years, will be located right next to the firm's existing factories The factory will be built on a piece of land provided by the local government, free of charge. Om Del, however, has to pay a fixed yeast maintenance cost of $200.000 to the local government throughout the project's life. The factory will be constructed at a cost of 20 and will be depreciated at its full cost on a straight-line basis over its estimated seal life of 10 years, with nero salvage value Equipment will be purchased for the factory a cost of $30 million The equipment will be fully depreciated to te valle a straight-line basis over its estimated useful life of 10 years. Salvage value of equipment at the end of project life is estimated to be 53 million The management of Om Del believes that these factory will gmerate attestas cash operating income of S5 million a your its fiestas years of operation and S10 million in each of the last four years Given the strong market demand for its vaccine products and sales arrangement OmicDel DOES NOT need to put aside any working capital for the new project Con't for parts. i) Calculate the initial cost of investment (2 marks) i) Calculate the present value of atter-tax operating cash income (3 marks) (Hint: What discount rate bould be used as the project's cost of capital in Calculate the present value of tax savings from depreciation for the factory and equipment (4 marks) i) Calculate the present value of after-tax salvage value for the factory ander cuipment (2 marks) Based on the net present value method should the project be undertaken? 3 marks)

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