Bob's Is a Retail Chain of Specialty Hardware Stores

Bob's is a retail chain of specialty hardware stores.The firm has 21,000 shares of stock outstanding that are currently valued at $68 a share and provide a 13.2 percent rate of return.The firm also has 500 bonds outstanding that have a face value of $1,000,a market price of $1,068,and a 7 percent coupon.These bonds mature in 6 years and pay interest semiannually.The tax rate is 35 percent.The firm is considering expanding by building a new superstore.The superstore will require an initial investment of $12.3 million and is expected to produce cash inflows of $1.1 million annually over its 10-year life.The risks associated with the superstore are comparable to the risks of the firm's current operations.The initial investment will be depreciated on a straight line basis over the life of the project.At the end of the 10 years,the firm expects to sell the superstore for $6.7 million.Should the firm accept or reject the superstore project and why?

A) Accept; the project's NPV is $1.27 million.
B) Accept; the NPV is $4.89 million.
C) Reject; the NPV is $1.06 million.
D) Reject; the NPV -$3.27 million.
E) Reject; the NPV is -$5.71 million.