(a) (i)WACC= E/V × Re+ D/V × Rd × (1-TC)*Re = Cost of equity = 16.65% Rd = Cost of debt = 7.00%E/V=Percentage of equity financing= 100/130D/V=Percentage of debt financing= 30/130TC = Corporate tax rate = 0.25 = 25%WACC= 100/130 × 16.65%+ D30/130 × 7.00% × (1-0.25)Cost of capital = 14.02% - 2.5%= 11.52 %*Re = 3% + 2.1 (6.5%) = 16.65%(a) (ii) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Unit sales (A) 2,000 3,500 4,200 5 000 5,100Revenue (B) 17,000,000 29,750,000 35,700,000 42,500,000 43,350,000Production cost (3,400,000) (5,950,000) (7,140,000) (8,500,000) (8 670,000)Expenses direct marketing (1,700,000) (2,975,000) (3,570,000) (4,250,000) (4,335,000) Depreciation (10,000,000) (10,000,000) (10,000,000) (10,000,000) ( 10,000,000) Profit before tax 1,900,000 10,825,000 14,990,000 19,750,000 20,345,000 Tax at 25% (475,000) (2,706,250) (3,747,500) (4,937,500) 5,086,250)Profit after taxes 1,425,000 8,118,750 11,242,500 14,812,500 15,258,750Add: Depreciation 10,000,000 10,000,000 10,000,000 10,000,000 10.00 0.000Cash flow-operation 11,425,000 18,118,750 21,242,500 24,812. 500 25,258,750 Working capital at 12% 2,040,000 3,570,000 4,284,000 5,100,000 5,202,000 0 Increase in Working Capital (2,040,000) (1,530,000) (714,000) (816 00 0) (102,000 ) 5,202,000Initial investment of the factory (50,000,000) 8,000,000Gain tax at 25% (2,000,000)Net cash flow (52,040,000) 9,895,000 17,404,750 20,426,500 24,710 50 0 36 460 750 Discount factor at 12% 1.0000 0.8967 0.8041 0.721 0.6465 0.5797 Present value (52,040,000) 8,872,846.50 13,995,159.48 14,727,506.50 15 9 75,338.25 21,136,296.78Net present value 22,667,148Since...... middle of paper ......Peavler, R. (2014). Calculate the weighted average cost of capital. [online] About.com Business Finance. Available at: http://bizfinance.about.com/od/cost-of-capital/a/Calculate-Weighted-Average-Cost-Of-Capital.htm [Accessed April 28, 2014]. Peavler, R. (2014 ). Debt and Equity Financing – Advantages and Disadvantages. [online] About.com Business Finance. Available at: http://bizfinance.about.com/od/generalinformatio1/a/debtequityfin.htm [Accessed April 29, 2014].Sorid, D. (2014). Weighted average cost of capital. [online] About.com Investing for beginners. Available at: http://beginnersinvest.about.com/lw/Business-Finance/Personal-finance/Weighted-Average-Cost-of-Capital.htm [Accessed April 29, 2014]. Investopedia, (2009). Cost of Equity Definition | Investopedia. [online] Available at: http://www.investopedia.com/terms/c/costofequity.asp [Accessed April 29. 2014].