What is the NPV of the new printing plant

Assignment Help Financial Accounting
Reference no: EM132966825

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. Show your work!

Reference no: EM132966825

Questions Cloud

Prepare the journal entry for the year ended june : Assume the business uses the percentage of sales method to estimate uncollectible accounts, prepare the journal entry for the year ended 30 June 2020.
What internal control principle is violated in this payroll : What are the legal and ethical considerations regarding Harry's handling of his payroll? What internal control principle is violated in this payroll
Volkswagen group-driving big business with big data : What is the landscape of the global automobile industry? How did VW Group's position evolve over the years?
Calculate the gross profit and operating income for March : Variable Selling and Administration Costs 16,000. Calculate the gross profit and operating income for March using absorption costing
What is the NPV of the new printing plant : 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
Calculate the volatility of the investor portfolio : The portfolio is weighted 30% in equities, 90% in bonds, and -20% in cash. Calculate the volatility of the investor portfolio
Prepare the entries to record the purchase of land : Prepare the entries to record the purchase of land, buildings and machinery during the year. Prepare general journal entries to record depreciation expense
Calculate the least number of years the product must sell : Using a break-even analysis, calculate the least number of years the product must sell in order for the company to engage in the project
What is the effective annual rate of return for investment : Suppose you pay $9,756 for a Treasury bill of $10,000 maturing in six months. What is the effective annual rate of return for this investment?

Reviews

Write a Review

Financial Accounting Questions & Answers

  The direct materials quantity variance

Wissota Co. has a material standard of 2 pounds per unit of output. Each pound has a standard price of $12 per pound. During February, Wissota Co. paid $57,220 for 4,840 pounds, which were used to produce 2,400 units. What is the direct materials qua..

  Compute for the dividend per share for preference share

Assuming that the preference share is cumulative and fully participating, compute for the dividend per share for preference share

  What is the balance of unappropriated retained earnings

Change in accounting policy from FIFO to average - credit adjustment 150,000. What is the balance of unappropriated retained earnings

  What amount of income tax expense will appear

Timber Corp. began the year with a balance in its Income Taxes Payable account of $10,000. What amount of income tax expense will appear

  Overhead activity cost pools and the two product lines

Carlise Corp., which manufactures ceiling fans, currently has two product lines, the Indoor and the Outdoor. Carlise has total overhead of $139,400. Carlise has identified the following information about its overhead activity cost pools and the two p..

  What is the weighted-average number of common shares

What is the amount of profit available for distribution to the common shareholders? What is the weighted-average number of common shares for the year?

  Complete with respect to conversion costs

ABC Company manufactures sun protection lotion. The Mixing Department, the first process department, mixes the chemicals required for the repellent. The following data are for the current month: Direct materials are added at the beginning of the proc..

  What is the number of incremental ordinary shares

Omega also had 30,000 written put options during 2021, with an exercise price of P400. What is the number of incremental ordinary shares

  What is the firms total equity

Hoover Inc. has current assets of $350,000 and fixed plant assets of $650,000. Current liabilities are $100,000 and long-term liabilities are $250,000. There is $120,000 in preferred stock outstanding and the firm has issued 10,000 shares of common s..

  How much is the balance of brooklyn capital

The total capital will be $330,000 and Damian's capital will be $70,000. How much is the balance of Brooklyn's capital, after the admission of Damian?

  What should be nominal rate of return of nick investment

What should be the nominal rate of return of Nick's investment product? Nick is a product manager in an investment baking firms.

  Evaluating the integrity of management

Evaluating the entity's condition of accounting records and internal control structure.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd