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Photochronograph Corporation (PC) manufactures time series photographic equipment It is currently at its target debt-equity ratio of .80. 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 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.
Night Shades, Inc. (NSI), manufactures biotech sunglasses. The variable material cost is $10.48 per unit, and the variable labor cost is $6.89 per unit.
Lewis corporation is planning relaxing its credit standards to increase its currently sagging sales. As a result of the proposed relaxation, sales are expected to increase through 10 percent from 10,000 to 11,000 units during the coming year.
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analyze the variances in the following scenarioyou are the nursing administrator for a medical group that expects a
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Sammy Sosa offers to buy Mark Grace's used snowmobile for $8,000, payable in five equal installments, which are to include 8.25 percent interest on the unpaid balance and a portion of the principal.
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