Assume XYZ company is thinking about constructing a new production line. The company has currently a target Debt-equity ratio of 0.60. It’s considering $80 million as a cost for this new production line. This new line is expected to generate after-tax cash flows of $8.5 million in perpetuity. The company raises all equity from outside financing. There are two financing options: 1. A new issue of common stock: The flotation costs of the new common stock would be 7 percent of the amount raised. The required return on the company’s new equity is 11 percent. 2. A new issue of 20-year bonds: The flotation costs of the new bonds would be 5 percent of the proceeds. The company issues these new bonds at a quartile coupon rate of 12 percent, and they are sold at par.   Required: Assume that the company has a 40 percent tax rate As a financial manager, provide your advice for the company whether it is a right decision to construct this new production line or not?

Landman Corporation (LC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .75. It’s considering building a new $60 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.3 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 9 percent of the amount raised. The required return on the company’s new equity is 15 percent. 2. A new issue of 20-year bonds: The flotation costs of the new bonds would be 3.6 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 5.3 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…

Landman Corporation (LC) 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 3.7 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 5.2 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.…

Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .75. It’s considering building a new $76 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.4 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 6.3 percent of the amount raised. The required return on the company’s new equity is 12 percent.     2. A new issue of 20-year bonds: The flotation costs of the new bonds would be 2.8 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 5 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…