Photochronograph Corporation (PC) manufactures time series photographic equipment It is currently at its target debtequity ratio of 80 Its considering building a new $59 million manufacturing facility This new plant is expected to generate aftertax cash flows of $7 1 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 8 9 percent of the amount raised The required return on the companys new equity is 14 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 8 percent, they will sell at par 3 Increased use of accounts payable financing Because this financing is part of the companys ongoing daily business, it has no flotation costs, and 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 15 (Assume there is no difference between the pretax and aftertax accounts payable cost ) What is the NPV of the new plant Assume that PC has a 35 percent tax rate (Enter your answer in dollars, not millions of dollars, i e 1,234,567 Do not round intermediate calculations and round your final answer to the nearest whole dollar amount )

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Posted on Sep 19, 2024

Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debtequity ratio of .80. Its considering building a new $59 million

Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debtequity ratio of .80. Its considering building a new $59 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.1 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 8.9 percent of the amount raised. The required return on the companys new equity is 14 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 8 percent, they will sell at par.

3.	Increased use of accounts payable financing: Because this financing is part of the companys ongoing daily business, it has no flotation costs, and 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 .15. (Assume there is no difference between the pretax and aftertax accounts payable cost.)

What is the NPV of the new plant? Assume that PC has a 35 percent tax rate. (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.)