Suppose you have been hired as a financial consultant to DefenseElectronics, Inc. (DEI), a large, publicly traded firm that is themarket share leader in radar detection systems (RDSs). The companyis looking at setting up a manufacturing plant overseas to producea new line of RDSs. This will be a five-year project. The companybought some land three years ago for $5.4 million in anticipationof using it as a toxic dump site for waste chemicals, but it builta piping system to safely discard the chemicals instead. The landwas appraised last week for $6.2 million. In five years, theaftertax value of the land will be $6.6 million, but the companyexpects to keep the land for a future project. The company wants tobuild its new manufacturing plant on this land; the plant andequipment will cost $32.72 million to build. The following marketdata on DEI’s securities is current:

Debt:	239,000 7.2 percent coupon bonds outstanding, 25 years tomaturity, selling for 108 percent of par; the bonds have a $1,000par value each and make semiannual payments.
Common stock:	9,700,000 shares outstanding, selling for $71.90 per share; thebeta is 1.1.
Preferred stock:	459,000 shares of 5 percent preferred stock outstanding,selling for $81.90 per share and and having a par value of$100.
Market:	7 percent expected market risk premium; 5 percent risk-freerate.

DEI uses G.M. Wharton as its lead underwriter. Wharton charges DEIspreads of 8 percent on new common stock issues, 6 percent on newpreferred stock issues, and 4 percent on new debt issues. Whartonhas included all direct and indirect issuance costs (along with itsprofit) in setting these spreads. Wharton has recommended to DEIthat it raise the funds needed to build the plant by issuing newshares of common stock. DEI’s tax rate is 35 percent. The projectrequires $1,525,000 in initial net working capital investment toget operational. Assume Wharton raises all equity for new projectsexternally.

a. Calculate the project’s initial Time 0 cashflow, taking into account all side effects. Assume that the networking capital will not require flotation costs. (Anegative answer should be indicated by a minus sign.Do not round intermediate calculations. Enter your answerin dollars, not millions of dollars, e.g., 1,234,567.)

b. The new RDS project is somewhat riskier thana typical project for DEI, primarily because the plant is beinglocated overseas. Management has told you to use an adjustmentfactor of +2 percent to account for this increased riskiness.Calculate the appropriate discount rate to use when evaluatingDEI’s project. (Do not round intermediate calculations.Enter your answer as a percent rounded to 2 decimal places, e.g.,32.16.)