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Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt−equity ratio of 0.75. It’s considering building a new $60 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.3 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 9.0 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 3.0 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 6.0 percent, they will sell at par. 3. 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 0.10. (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 38 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.)
Callaghan Motors' bonds have 16 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 9.5%, and the yield to maturity is 8%. What is the bond's current market price? Round your answer to the..
Star, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently there are 5,000 shares outstanding and the price per share is $86. Ms. Brown, a sharehold..
Shi Importers’ balance sheet shows $300 million in debt, $50 million in preferred stock, and $650 million in total common equity, which is its target capital structure. Shi’s tax rate is 40%, cost of debt is 6%, cost of preferred stock is 5.8% and co..
This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $20,000 for one year. The interest rate is 17.25 percent. What is the interest rate on this loan?
What are bond ratings and How do they impact bond valuation - who are the bond ratings agencies and what do the ratings mean? When ratings fall what happens to the valuation of a bond and why?
Yield to Maturity You have just purchased an outstanding 15-year bond with a par value of $1,000 for $1,145.68. It's annual coupon payment is $75. What is the bond's yield to maturity?
Last year, Paul invested $38,000 in Oil Town stock, $11,000 in long-term government bonds, and $8,000 in U.S. Treasury bills. Over the course of the year, he earned returns of 12.1 percent, 7.2 percent, and 4.1 percent, respectively. What was the nom..
What would the new debt ratio be if the machine were leased? If it is purchased?c. Is the financial risk of the business different under the two acquisition alternatives?
Common stock financing is often considered the safest form of financing, as the issuing firm is under no obligation to pay dividends. Owners of common shares assume this uncertainty in the hope of favourable returns. What is the argument for issuing ..
Assume a $6,500 investment and the following cash flows for two alternatives. Under the payback method, which of the following would be concluded?
Please describe the process you plan to use to conduct research, identify findings, and develop the Comprehensive Project due in Unit 5 and present a preliminary outline indicating how you intend to organize the project deliverable.
What are the general consumer characteristics (demographics, for example, age, gender, income, and occupation, and psychographics, for example, lifestyle and personality) for the car you drive?
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