Westjet Limited is considering building a new manufacturing plant to produce wjets on the land it bought
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Question:
Debt: 100,000 7% annual coupon bonds, 20 years to maturity, selling for 111.47% of par value. The bonds have $1000 par value each.
Preferred Stock: 1,000,000 shares of 3.5% preferred stock outstanding, selling for $70 per share. Par value is $100 each.
Expected return on the market 8%, the risk free rate of return is 3%, and the corporate tax rate is 40%. An initial investment of $10,000,000 in net working capital is required.
b. The plant will have 25 years life, will be depreciated straight line, and will have zero salvage value after 25 year. Land will be sold for $15,000,000. Westjet Limited will make 300,000 wjets per year, and sell them at an average price of $80 each. The variable cost will be $30 per wjet and the fixed cost will be $5,000,000 per year. Determine NPV.
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
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