Question
Landman Corporation (LC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of 2/3. The total assets of the company now
Landman Corporation (LC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of 2/3. The total assets of the company now is $500 million. Its considering building a new $85 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.78 million in perpetuity. The company raises all this money through outside financing.
1. The company raises half the amount using 20 year bonds. If the company issues these new bonds at an annual coupon rate of 7 percent, they will sell at par.
2. The company raises the remaining half using equity. The required return on the companys new equity is 13 percent.
The company invests this money into financing the new project. Calculate the NPV of the new project. Ignore taxes.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started