Photographic equipment-what is the npv of the new plant

Assignment Help Financial Management

Reference no: EM131896685

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 $59 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.1 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 8.9 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.

Reference no: EM131896685

Questions Cloud

Current rate for two-year treasury security : what should be the current rate for a two-year Treasury security?

Corporation has previously issued corporate bonds : Suppose that XYZ Corporation has previously issued corporate bonds, preferred stock and common stock.

Company stock will trade for one year from today : what price would the CAPM predict that the company’s stock will trade for one year from today?

Net patient service revenue operating expenses salaries : Contractual allowance Net patient service revenue Operating expenses Salaries and wages Employee benefits Supplies Purchased professional services Etc.

Photographic equipment-what is the npv of the new plant : Photochronograph Corporation (PC) manufactures time series photographic equipment. What is the NPV of the new plant?

Increase output after project has been implemented : Ignoring the option to wait: ignores the ability of a manager to increase output after a project has been implemented.

What is the portfolio required return : The market's required return is 9% and the risk-free rate is 4%. What is the portfolio's required return?

Annual depreciation under declining-balance method : First Year Second Year Annual depreciation under declining-balance method.

Company stock will trade for one year from today : Given the following information from Capstone Corporation, what price would the CAPM predict that the company’s stock will trade for one year from today?

User Account

All Pages