Wilbur Comp. has recently identified an island that has some of the richest fertilized land in the world. Wilbur Comp. wants to plant orange and grapefruit trees. The harvested fruit will be sold only in the United States and these citrus trees have a life span of just five years. The owners of the island have offered to sell it to Wilbur Comp. for $5 million. Wilbur Comp. would also be faced with additional initial costs of $15 million to engineer the equipment that will be used in planting, fertilizing, and harvesting. Wilbur Comp. is an environmentally aware firm and has agreed to replant bushes before selling the island at the end of the five-year period.

Wilbur Comp. will plant trees that will produce no fruit until they mature at the end of year three. Therefore, there are no revenues expected in years one and two. Wilbur Comp. will begin generating revenues immediately from supporting product lines, such as a gift shop, coffee house, and online sales of merchandise. The harvest begins in year 3 and continues until the end of year five. The following information has been made available to Wilbur Comp.


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One and Two

Three, Four, and Five


$1 million

$30 million

Operating Expenses (excluding depreciation)

$1 million

$13 million

Depreciation Expense

5% annually

30% annually

Interest Expense

$1 million

$0.75 million

WILBUR COMP. will use the New York Bond market to issue $11 million in five-year bonds. The coupon rate is 6.22% and the current price should be $976.

WILBUR COMP. common shares pay a current dividend of $1.83 with an expected growth rate of 3.8%. Current stock price is $17.93.

The following is a list of other relevant information: WILBUR COMP. pays a marginal corporate tax rate of 20%; remember that land cannot be depreciated. WILBUR COMP. hopes to sell the island for $6 million at the end of year 5 after spending $4 million on replanting and making a $4 million donation as part of its philanthropic efforts.

Calculate the net present value for this project.

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