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Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt−equity ratio of .8. It’s considering building a new $48 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $6 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 7.8 percent of the amount raised. The required return on the company’s new equity is 14 percent. 2. A new issue of 20-year bonds: The flotation costs of the new bonds would be 5.0 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 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 .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, e.g. 1,234,567. Do not round intermediate calculations and round your final answer to the nearest whole dollar amount, e.g., 32.)
The recapture of net working capital at the end of a project will A. increase terminal year free cash flow by the change in net working capital times the corporate tax rate OR B. increase terminal year free cash flow OR C. decrease terminal year free..
A federal government contractor is considering buying a software package at a cost of $500,000. The software company will charge an annual maintenance fee of $30,000 payable at the beginning each year including the very first year. The contracting co..
(Cost of preferred stock) The preferred stock of Gator Industries sells for $34.35 and pays $2.74 per year in dividends. What is the cost of preferred stock financing? The flotation costs adjusted initial outlay for issuing the preferred share are?
Donut, Inc. had 10,000 pounds of flour on hand at the beginning of the year. The company plans to produce 100,000 boxes of donuts during the year. Each box of donuts takes half a pound of flour. The company wants 8,000 pounds of flour on hand at the ..
Your firm is considering leasing a new robotic milling control system. The lease lasts for 4 years. The lease calls for 5 payments of $280,000 per year with the first payment occurring at lease inception. The firm can borrow at 10%, and the corporate..
Your company is considering an investment in a new product. The new product has been developed with a total cumulative investment of 2.5 million. To initiate the product from this point in time, a 1.5 million investment will be required. Construct a ..
Please define and describe in your own words the benefits and disadvantage of using payback period, NPV and IRR as means for evaluating project. Please explain how mutually exclusive projects influence these analysis tools.
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 –$592,000 1 222,000 2 165,000 3 230,000 4 209,000 All cash flows will occur in Erewhon and are expressed in dollars...
Suppose you buy a 6.8 percent coupon bond today for $1,120. The bond has 8 years maturity. What rate of return do you expect on your investment? Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. What price w..
A firm's financial statements can tell you a lot about them, but exactly what does that mean and how can financial managers use this data to make informed decisions? Which statements do you feel reveal the most useful information and why?
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Profits made by directors, officers, or owners of 10 percent or more of the securities of a corporation as a result of buying and selling the securities within a six month period. A type of business organization formed and authorized by state law to ..
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