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Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt–equity ratio of .63. It’s considering building a new $65.3 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.78 million in perpetuity. There are three financing options:
A new issue of common stock: The required return on the company’s new equity is 15.3 percent.
A new issue of 20-year bonds: If the company issues these new bonds at an annual coupon rate of 7.3 percent, they will sell at par.
Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, 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 .12. (Assume there is no difference between the pretax and aftertax accounts payable cost.) If the tax rate is 38 percent, what is the NPV of the new plant?
What is the weighted average cost of capital for a firm?- How are taxes accounted for when we calculate the cost of debt?
What is the value of Palmer to Plant? What would Plant’s gain be from this acquisition?
What are the advantages and disadvantages of using preferred stock in the capital structure? What is the component cost for Coogly's preferred stock? What are the advantages and disadvantages of using preferred stock in the capital structure?
A second version of the Markowitz portfolio model maximizes expected return subject to a constraint that the variance of the portfolio must be less than or equal to some specified amount. Consider the Hauck Financial Service data. Click on the datafi..
Sharon Kabana won the state lottery and will receive a payment of $89,729.45 at the end of each year for the next 20 years. If the going rate of interest is 7.25 percent, what is the present value of her lottery winnings? What is the present value of..
Calculate T's taxable income for the tax year of 2012. T will not be able to itemize deductions and calculate T's capital account in the partnership at the end of the tax year.
Given: $140.10 per month; cash price $5,600; down payment $0 Cash or trade months with bank-approved credit; amount financed $5,600 Finance charge $2,806 Total payments $8,406 (Use the tables in the handbook.) The APR by table lookup is:
Tai Credit Corp. wants to earn an effective annual return on its consumer loans of 14.6 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers?
what annual return must the stock mutual fund earn to exceed an investment in the money market fund?
You are evaluating two different cookie-baking ovens. The Pillsbury 707 costs $69,500, has a 5-year life, and has an annual OCF (after tax) of –$11,200 per year. The Keebler Cookie Munster costs $96,000, has a 7-year life, and has an annual OCF (afte..
An investor has two bonds in his portfolio that both have a face value of $1,000 and pay a 6% annual coupon.
Discuss how you have planned for your retirement so far, whether you are on track to reaching your goals, and what changes you need to make. Are there any specific ideas that will help you reach your goals and if so, discuss.
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