Question
Suppose the Tripleday Printing Company is currently at its target debt-equity ratio of 100%. It is considering building a new $500,000 printing plant in Kansas.
Suppose the Tripleday Printing Company is currently at its target debt-equity ratio of 100%. It is considering building a new $500,000 printing plant in Kansas. This new plant is expected to generate aftertax cash flows of $73,150 per year forever. The tax rate is 21%. The financing option available is: A new issue of common stock: The issuance costs of the new common stock would be about 10% of the amount raised. The required return on the companys new equity is 20%. An issue of 30-year bonds: The issuance costs of the new debt would be 2% of the proceeds. The company can raise new debt at 10%. What is the NPV of the new printing plant?
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