Question: Maple Leaf Motor is trying to determine if it should build a plant in Quebec to produce its new Moose Mobile model. It will take

Maple Leaf Motor is trying to determine if it
Maple Leaf Motor is trying to determine if it should build a plant in Quebec to produce its new Moose Mobile model. It will take one year to build the plant. (Assume all plant expenses are upfront, depreciation starts in year 1 and revenue will start in year 2.) The plant will cost C$3.6 billion. The Moose Mobile will only be produced for 6 years. At the end of the production run the plant will be disassembled and sold for C$600 million. The plant will produce 80,000 cars in the first year going up by 10% annually. The price for the car is C$45,000 and expected to rise with inflation by 4% annually. The raw materials for each car will be C$20,000 rising 3% a year and labor per car is C$7,000 increasing 8% per year. The tax rate is 25%. Depreciation is straightline for 5 years. The land costs for the new plant are C$250 million payable at the beginning of the year, for the first four years. We plan to borrow C$2 billion to finance the project at an interest rate of 6.5%. Maple Leaf Motors uses a 12.8% nominal discount rate for all projects. Assume all cashflows are at the end of each year other than where specified. You may not need all the information presented here

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