A proposal is being investigated regarding the construction of a new power plant.
- A one-off land costs $510000
- A one-off building costs $970000,
- A one-off equipment costs $650000,
- a). The annual operating cost of the power plant is estimated to be $94000 starting at the end of year 1 that last forever,
- b). One major overhaul is required every year, starting at the end of year 1 at a cost of $99000 that last forever.
c). To fund the initial land, building and equipment cost, 48.6% of the initial cost will be acquired from selling shares, with share holders expecting 4.2% of annual return, and the remaining will be acquired via financing with annual interest rate of 5.9%. You may assume a corporate tax rate of 29%.
d). The estimated weighted average cost of capital (WACC) is … p.a.. Leave your answer as a positive value with 2 decimal places.
e). Using another estimate of WACC of 4.3% p.a., the capitalized cost of this project is millions. Leave your answer as a positive value with 2 decimal points.
