Firm UVW has a face debt value of $55 Million USDs trading at 70% with a pre-tax weightedcost of 8%. Firm UVW's common equity for the year was valued at $200 Million of USDs andpreferred equity for $15 Million of USDs. The Preferred equity rate was calculated to be20%. However, the common equity was to be calculated using CAPM approach, with a 5%risk free rate and a 5% market risk premium rate, assuming a Beta of 0.9. If the tax rate is30%, what is Firm UVW’s WACC? Express your answers in strictly numerical terms. Forexample, if the answer is 5%, write 0.05755,266Continue considering Firm UVW. Suppose Firm UVW is considering investing in a new projectof urban development. The cost of the project is $5 Millions of USD. Firm UVW expects thatthe non-incremental yearly cash flows from the project are $1.5 Million of USD for the nextfive years; e.g. that is $1.5 Million of USD each year. Using the calculated WACC in theprevious question, what is the Net Present Value (NPV) of the project? Note: Express youranswers in strictly numerical terms. For example, if the answer is five million dollars, write5000000 as an answer.

To answer this question, we need to calculate the Weighted Average Cost of Capital (WACC) and then use it to calculate the Net Present Value (NPV) of the project.

Step 1: Calculate the WACC

The WACC is calculated using the formula:

WACC = (E/V) * Re + (P/V) * Rp + (D/V) * Rd * (1 - Tc)

Where: E = Market value of equity P = Market value of preferred equity D = Market value of debt V = Total market value of equity, preferred equity, and debt Re = Cost of equity Rp = Cost of preferred equity Rd = Cost of debt Tc = Corporate tax rate

Given: E = $200 Million P =$15 Million D = $55 Million * 70$38.5 Million V = E + P + D = $200 Million +$15 Million + $38.5 Million =$253.5 Million Re = Risk free rate + Beta * Market risk premium = 5% + 0.9 * 5% = 9.5% Rp = 20% Rd = 8% Tc = 30%

Substitute these values into the WACC formula:

WACC = (200/253.5) * 9.5% + (15/253.5) * 20% + (38.5/253.5) * 8% * (1 - 30%) = 0.075 or 7.5%

Step 2: Calculate the NPV

The NPV is calculated using the formula:

NPV = ∑ [CFt / (1 + r)^t] - C0

Where: CFt = Cash inflow during the period t r = Discount rate (WACC) t = Number of time periods C0 = Initial investment

Given: CFt = $1.5 Million for each of the next 5 years r = WACC = 7.5C0 =$5 Million

Substitute these values into the NPV formula:

NPV = [1.5/(1+0.075)^1 + 1.5/(1+0.075)^2 + 1.5/(1+0.075)^3 + 1.5/(1+0.075)^4 + 1.5/(1+0.075)^5] - 5 = 4.71 Million

So, the WACC is 7.5% and the NPV of the project is $4.71 Million.