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ABC Co. is evaluating a project to add a new smartphone to its product offerings. To manufacture the smartphones, it needs to set up a new factory today at a cost of $100 million. Alternatively, it may stop a pending $85 million sale of an existing factory, and spend $5 million more in refitting costs so that this factory can make the smartphones. The smartphone project will yield $12 million in cash flows at the end of this year, and grow at 2% annually thereafter. ABC’s costs of equity and debt are 12% and 8%, respectively. There are no taxes. If ABC wishes to maintain a B = 2, is the project feasible?

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