Question: 1. Tim Hortons is considering a project to make jumbo jets. Should Tims undertake the project? The following data may be useful. Tims has a

1. Tim Hortons is considering a project to make jumbo jets. Should Tims undertake the project? The following data may be useful.

Tims has a target D/E of 0.6. Tims current beta is 1.1.

Boeing has a D/E of 1.2 and a beta of 2.1.

Assume the risk free rate is 4% and the market risk premium is 6%.

The project will cost $1 billion, and will generate EBITDA of $175 million.

Assume the entire project cost will consist of assets which will be eligible for CCA with a CCA rate of 20%. Assume the project will run indefinitely.

Tims planning to finance this project at the same D/E level that the company currently enjoys, and assume that Tims can borrow at 4.5%. Boeings borrowing rate is 7%.

All firms pay tax at a rate of 25%.

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