Capital Budgeting/ Cost of Capital

Capital Budgeting/ Cost of Capital in $14

Shell Solar Water Inc. (SSI) is a market leader in the production and distribution of solar water heating systems throughout the OECS.The company is considering establishing a production plant on the island of Grand Cayman to decrease the cost of its operations. SSI had already purchased some land two years ago for $1,500,000 on which it plans to build its new plant which costs $4,000,000 to house its manufacturing business.The legal fee attached to this purchase was $120,000 and the company believes it can recover this cost through the sales of its systems which it expects to be more than what it currently enjoys.The company uses a CCA rate of 8 percent for the amortizing of its plant which can be scrapped for $780,000 at the end of the project life.