Output area:WACC- floatation costs-Project cost- NPV-

& Cut Arial 12 A ab Wrap Text Cu Be Copy Paste Format Painter BIU . . DA. Merge & Center . $ Clipboard Font Alignment D20 X V A B C D E F . G H K Flotation Costs and NPV Bob's Diaper Factory (BDF) manufactures cutting edge moisture repellant baby diapers. It is currently at its target debt-equity ratio of .65. It's considering building a new $75 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $10.2 million in perpetuity. The company raises all equity from outside financing. There are three financing options: 1. A new issue of common stock: The flotation costs of the new common stock would be 6.5 percent of the amount raised. The required return on the company's new equity is 15 percent. 2. A new issue of 20-year bonds: The flotation costs of the new bonds would be 5 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 7.25 percent, they will sell at par. 10 3. Increased use of accounts payable financing: Because this financing is part of the company's ongoing daily 11 business, it has no flotation costs, and the company assigns it a cost that is the same as the overall firm WACC. 12 Management has a target ratio of accounts payable to long-term debt of . 15. (Assume there is no difference 13 between the pretax and aftertax accounts payable cost.) 14 15 What is the NPV of the new plant? Assume that PC has a 28 percent tax rate. 16 17 Input Area: 18 19 Debt-to-equity ratio 20 Projected cost 21 Aftertax cash flows 22 Equity floatation costs 23 Required return 24 Debt floatation costs 25 Coupon rate 26 Target ratio A/P to LTD 27 A/P floatation costs