Suncor Energy is engaging in a new capital project of the coast of the northern Yukon territory
Question:
Suncor Energy is engaging in a new capital project of the coast of the northern Yukon territory where a substantial amount of oil has become available dur to climate change. Suncor will need to deploy $2000 in CapEX (capital) for this investment for the land, rights, exploration, and other start-up items.
Suncor is not able to finance this project internally (through retained earnings). instead, Suncor plans to issue new equity and debt for this project. The characteristic of the financing is as follows:
$1400 in 30-year,5% coupon bonds will be sold in the primary market for $225 each
$600 in new equity which currently (likely will continue to) trade at $44 and pays a $2.08 dividend which is projected to grow at 5%
The corporate tax rate in Canada is 15%, Alberta (where Suncor operates) also has a provincial corporate tax rate of 10%
What is the weighted average cost of capital for this project?
Financial Accounting A User Perspective
ISBN: 978-0470676608
6th Canadian Edition
Authors: Robert E Hoskin, Maureen R Fizzell, Donald C Cherry