Ava Sap Company (ASC) has recently identified an island off the northern coast of California that is home to a forest of Swamp Spanish oak trees. ASC has developed a proprietary process to convert the sap from these trees into a special type of honey that reduces swelling in arthritis patients as well as provide unique taste when added to hot tea. The owners of the island have offered to sell it to ASC for USD 20 million and ASC will be faced with additional initial costs of USD 14 million to engineer the equipment to remove the sap from the trees without harming them. A portion of operating expenses includes the import of blue herons which will nest in the trees and eat most insects that will cause tree damage and sap reduction. The following information has been made available to ASC: ASC will borrow the entire amount in US dollars in US bond and stock markets. ASC will use the California bond market to issue USD 21 million in four-year bonds. The coupon rate is 4.21% and the current price is expected to be USD 949. ASC common shares trade on the NYSE and have a beta of 1.12, while the S\&P 500 Index has a beta of 1.0. The risk-free rate of interest is 4.25% and the return on a well-diversified portfolio is 10.4%. The following is a list of other relevant information: ASC pays a marginal corporate tax rate of 20% remember that land cannot be depreciated. ASC hopes to buy another island off the coast of Iceland in exactly four years to find a new home for the herons. The new island is expected to cost ISK 75 million. The relevant exchange rate is USD 0.022/ISK (Iceland krona). At the end of year two, ASC will donate USD 1.5 million to the International Heron Foundation. ASC also expects the honey will be popular in Australia and will export its product for only one year. It expects to generate AUD 8 million in operating cash flows during year 3 (Australian dollars). The relevant exchange rate is 1UD 1.55/USD. Determine the net present value (in terms of US dollars) for this project. Ava Sap Company (ASC) has recently identified an island off the northern coast of California that is home to a forest of Swamp Spanish oak trees. ASC has developed a proprietary process to convert the sap from these trees into a special type of honey that reduces swelling in arthritis patients as well as provide unique taste when added to hot tea. The owners of the island have offered to sell it to ASC for USD 20 million and ASC will be faced with additional initial costs of USD 14 million to engineer the equipment to remove the sap from the trees without harming them. A portion of operating expenses includes the import of blue herons which will nest in the trees and eat most insects that will cause tree damage and sap reduction. The following information has been made available to ASC: ASC will borrow the entire amount in US dollars in US bond and stock markets. ASC will use the California bond market to issue USD 21 million in four-year bonds. The coupon rate is 4.21% and the current price is expected to be USD 949. ASC common shares trade on the NYSE and have a beta of 1.12, while the S\&P 500 Index has a beta of 1.0. The risk-free rate of interest is 4.25% and the return on a well-diversified portfolio is 10.4%. The following is a list of other relevant information: ASC pays a marginal corporate tax rate of 20% remember that land cannot be depreciated. ASC hopes to buy another island off the coast of Iceland in exactly four years to find a new home for the herons. The new island is expected to cost ISK 75 million. The relevant exchange rate is USD 0.022/ISK (Iceland krona). At the end of year two, ASC will donate USD 1.5 million to the International Heron Foundation. ASC also expects the honey will be popular in Australia and will export its product for only one year. It expects to generate AUD 8 million in operating cash flows during year 3 (Australian dollars). The relevant exchange rate is 1UD 1.55/USD. Determine the net present value (in terms of US dollars) for this project
