The assignmentYour boss requests that you analyze these two projects and make an investmentrecommendation. During a brief with him this morning, he asked you the following questions.Questions1. What is the required rate of return on WI’s stock?2. What should be WI’s current stock price?3. What is the yield to maturity on WI’s outstanding bonds?4. What would be the rate of return to investors from newly issued bonds?5. Why are the [percentage] costs of currently outstanding debt and newly issued debtdifferent?6. What would be the [percentage] cost to the company from newly issued bonds?7. What should be an appropriate hurdle rate [require rate of return] to evaluate thesetwo new projects?8. Evaluate projects’: NPV; PI; and IRRNote that each project has three different type of cash flow being evaluated1) Initial Outlay2) Annual free cash flow3) Terminal cash flow and/or terminal value of all future cash flowsInformationIntroductionYou have recently been hired by Weston Inc., in the finance area. Weston Inc., is consideringan expansion for its core business for year 2009 from two mutually exclusive projects. Theprojects being considered have similar risk characteristic to the company itself. Since theinvestment is part of company’s effort to expand its business, WI plans to use retainedearnings and issue new bonds to facilitate one of the two projects as well as other newbusiness investment being evaluated by your WI’s colleagues. WI’s marginal tax rate is 35%.The resulting capital structure is following:Addition to Retained Earnings $150,000,000New Issue Debt $100,000,000 (Market Value)StocksWI stock’s beta is 1.30. Currently, one-year T-bill rate is 2.5% and the S&P 500 index returnis 7.5%. Additionally, starting from this year, WI plans to pay dividends at a growing rate of3%. Last week, the company paid dividend of $1.5 per share.BondsCurrently, WI’s previously issued bonds are selling in the market for $875.65. The bonds willmature in 11 years, carry coupon rate of 8% and pay coupon annually. In order to pursue theinvestment, CFO of the company has negotiated with an investment bank and arrived at aconclusion that WI can issue new 10-year bonds with face value of $1,000 pay annual couponof 11% and can be sold in the market for $1,100. The investment bank will charge 5.5% feeon selling price. WI will issue these bonds totaling $100,000,000.CF of the projectsMachine A cost $95,000,000. This machine will increase earning before interest and taxes(EBIT) by $5,650,000 per year, on average, for the first 10 years. Starting from year 11,annual EBIT will increase at a very low growth rate of 1.5%. Assume that IRS allows thistype of machine to be depreciated over 10 years. However, you know that this machine couldlast a really long time. Hence, you assume that Machine A will last forever. To operate themachine properly, workers have to go through a training session that would cost $600,000after-tax. Additionally, it would cost $800,000 after-tax to install this machine properly.Machine A will also require that WI increase inventory of $2,000,000 to reach the mostefficient machine capacity.