Retlaw Corporation

$($

RC

$)$

$$manufactures time

$-$

series photographic equipment. It is currently at its target debt

$$

equity ratio of

$0$

$.$

$8$

$8$

$.$

$$It

$$

s considering building a new $

$4$

$9$

$$million manufacturing facility. This new plant is expected to generate after

$-$

tax cash flows of $

$8$

$.$

$8$

$$million in perpetuity. The company raises all equity from outside financing. There are three financing options:

$$

A new issue of common stock: The flotation costs of the new common stock would be

$9$

$\%$

$$of the amount raised. The required return on the company

$$

s new equity is

$1$

$5$

$\%$

$.$

A new issue of

$2$

$0$

$-$

year bonds: The flotation costs of the new bonds would be

$4$

$\%$

$$of the proceeds. If the company issues these new bonds at an annual coupon rate of

$8$

$.$

$0$

$\%$

$,$

$$they will sell at par.

Increased use of accounts payable financing: Because this financing is part of the company

$$

s 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

$0$

$.$

$1$

$4$

$0$

$.$

$($

Assume there is no difference between the pre

$-$

tax and after

$-$

tax accounts payable cost.

$)$

$$

What is the NPV of the new plant? Assume that RC has a

$2$

$5$

$\%$

$$tax rate.

$($

Enter the answer in dollars. Do not round intermediate calculations. Round the WACC percentage to

$2$

$$decimal places. Round the final answer to

$2$

$$decimal places. Omit $ sign in your response.

$)$

$$

NPV $