Historically, Hong Kong has imported over 95% of its fresh vegetables each day. In an effort to develop sustainable and renewable vegetable sources, a new commercial vertical crop technology is being installed through a public-private partnership with Valcent Products. 1 For Valcent Announces Agreement to Supply VerticropTM Vertical Farming Technology to Hong Kong's VF Innovations Ltd.," www.valcent.net, June 16, 2010 news release.
Illustration purposes, assume that the present worth of the total system cost is $20 million with financing sources and costs as follows.
|
Commercial loan for debt financing
|
$10 million at 6.8% per year
|
|
Retained earnings from partnering corporations
|
$4 million at 5.2% per year
|
|
Sale of stock (common and preferred)
|
$6 million at 5.9% per year
|
There are three existing international vertical farming projects with capitalization and WACC values as follows:
|
Project 1:
|
$5 million with WACC 1 7.9%
|
|
Project 2:
|
$30 million with WACC 2 10.2%
|
|
Project 3:
|
$7 million with WACC 3 4.8%
|
Compare the WACC for the Hong Kong (HK) project with the WACC of the existing projects.