Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

all the three options thanks Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .61. It's considering

image text in transcribedall the three options thanks

Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .61. It's considering building a new $65.1 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.51 million in perpetuity. There are three financing options: a. A new issue of common stock: The required return on the company's new equity is 15.1 percent b. A new issue of 20-year bonds: If the company issues these new bonds at an annual coupon rate of 7.2 percent, they will sell at par. c. Increased use of accounts payable financing: Because this financing is part of the company's ongoing daily business, the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long- term debt of.09. (Assume there is no difference between the pretax and aftertax accounts payable cost.) If the tax rate is 21 percent, what is the NPV of the new plant? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) Net present value

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Public Finance In A Changing World

Authors: Peter Birch Sorensen

1998th Edition

0333682211, 978-0333682210

More Books

Students also viewed these Finance questions

Question

1. Does your voice project confidence? Authority?

Answered: 1 week ago