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please answer requirements properly Reggie Hammond is the CEO of Cates Research ( CR ) who has recently identified an island off the northeastern coast
please answer requirements properly
Reggie Hammond is the CEO of Cates Research CR who has recently identified an island off the northeastern coast of Canada that he believes contains a large population of special spiders. The venom from these spiders will be used to fight a specific type of cancer that is unique to Europe. The cancer drug will be sold exclusively in Europe. The owners of the island have offered to sell it to CR for CAD Canadian dollars million. CR would also be faced with additional initial costs of CAD million to engineer the equipment that will extract the venom from the spiders. Hammond is an environmentally sensitive leader and has vowed to return the spiders to the island and to restore the island if there is any damage to it
The spider population would provide enough venom to last for four years. The following information has been made available to Hammond:
Year
Revenues
EUR million increase by annually
Operating Expenses excluding depreciation
EUR million increase by annually
Interest Expense
EUR million fixed interest payments
Exchange Rate
EUR CAD with the CAD depreciating by per year vs the EUR
Hammond has decided to issue a bond in Canada to raise CAD million. The bond will have a coupon rate of four years until maturity, and a price of CAD
Hammond has also decided to raise the remaining capital by issuing shares of CR using a Torontobased investment banking firm. CR pays a current dividend of CAD per share with an expected growth rate of Current market price of CRs stock is CAD
The following is a list of other relevant information: CR pays a marginal corporate tax rate of ; remember that land cannot be depreciated. The current spot rate is EUR CAD CR will donate to the European Spider Foundation at the end of year in the amount of EUR million and will construct a spider home on the island at the at end of year in the amount of EUR million. Depreciation percentages are in year in year and in year
A Compute the WACC..
B Determine the net present value in terms of CAD for the island.
C Identify and discuss two operating risks associated with this investment and one political risk.
D Explain how CR will most likely manage the currency risk.
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