This question aim to test you -How to determine a firm\'s overall cost of capita

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This question aim to test you

-How to determine a firm's overall cost of capital.

-How to correctly include flotation costs in capitalbudgeting projects.

Question ~o~" :>

If you have been hired as a SKY company financial consultant to Defense Banana Electronics, Co. (DELI), a large, publicly traded firm that is the market share leader in radar detection systems (RDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. This will be a five-year project. The company bought some land three years ago for $4 million in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. The land was appraised last week for $5.1 million. In five years, the after-tax value of the land will be $6 million, but the company expects to keep the land for a future project. The company wants to build its new manufacturing plant on this land; the plant and equipment will cost $35 million to build. The following market data on DEI

Explanation / Answer

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