What is the npv of the new printing plant

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Question - The Tripleday Printing Company is currently at its target debt-equity ratio of 100%. It is considering building a new $500,000 printing plant in Kansas. This new plant is expected to generate after-tax cash flows of $73,150 per year forever. The tax rate is 21%. There are two financing options:

1) A $500,000 new issue of common stock: The issuance costs of the new common stock would be about 10% of the amount raised. The required return on the company's new equity is 20%.

2) A $500,000 issue of 30-year bonds: The issuance costs of the new debt would be 2% of the proceeds. The company can raise new debt at 10%. What is the NPV of the new printing plant when floatation costs are considered? The floatation costs should be calculated based on the 100% debt-equity ratio.

Reference no: EM132964469

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