QUESTION 1:Westjet Limited is considering building a new manufacturing plant to produce wjets on the land itbought 10 years ago for $5,000,000. The land is currently appraised at 15,000,000. The constructioncost of the plant will be $50,000,000. The following market data on the Westjet Limited is current:Common Stock: 2,000,000 shares, selling for $100 each; the beta is 1.5Debt:100,000 7% annual coupon bonds, 20 years to maturity, selling for111.47% of par value. The bonds have $1000 par value each.1,000,000 shares of 3.5% preferred stock outstanding, selling for$70 per share. Par value is $100 each.Preferred Stock: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.a.Determine the weighted average cost of capital.b.The plant will have 25 years life, will be depreciated straight line, and will have zero salvagevalue after 25 year. Land will be sold for $15,000,000. Westjet Limited will make 300,000wjets per year, and sell them at an average price of $80 each. The variable cost will be $30 perwjet and the fixed cost will be $5,000,000 per year. Determine NPV.

WACC stands for Weighted Average Cost of Capital. It is a financial metric used to calculate the…

Answered: Westjet Limited is considering building…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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