Manufactures time series photographic equipment

Assignment Help Financial Management

Reference no: EM131848607

Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt−equity ratio of 0.85. It’s considering building a new $40 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $5.2 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 7.0 percent of the amount raised. The required return on the company’s new equity is 13 percent.

2. A new issue of 20-year bonds: The flotation costs of the new bonds would be 4.0 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 7.0 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 0.20. (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 40 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.)

NPV $

References

Reference no: EM131848607

Questions Cloud

Advocate a mandatory expiration date : Would you advocate a mandatory expiration date on data to ensure at some point it no longer exists?

Binary floating-point representation of the number : Using a 64-bit system, the binary floating-point representation of the number a, the way that computer stores this number, is the following

Desktop or web based applications : Can we use Ms Access to prototype Desktop or Web Based Applications?

Bolded statement in my code produces : The bolded statement in my code produces the output of 0.0 / 0 if the totalScore / totalMax produce a double. I've been trying different solution

Manufactures time series photographic equipment : Photochronograph Corporation (PC) manufactures time series photographic equipment. The company raises all equity from outside financing.

Biggest challenges to being a systems : Provide some examples of what would you believe are some of the biggest challenges to being a systems analyst and explain why you feel that might be a challenge

What is the company target debt–equity ratio : If the company issued new securities in the same proportion as its target capital structure, what is the company’s target debt–equity ratio?

What characteristics make up a good network design : What characteristics make up a good network design? What would you includet?

What is the maximum initial cost the company : What is the maximum initial cost the company would be willing to pay for the project?

User Account

All Pages