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If the tax rate is 23 percent, what is the NPV of the new plant? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. Net present value

If the tax rate is 23 percent, what is the NPV of the new plant? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. Net present value

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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4 Landman Corporation (LC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of 63. It's considering building a new $65.3 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.89 million in perpetulty. There are three financing options: a. A new issue of common stock. The required return on the company's new equity is 15.3 percent. b. A new issue of 20-year bonds. If the company issues these new bonds at an annual coupon rate of 7.4 percent, they will sell at par c. increased use of accounts payable financing Because this financing is part of the company's ongoing daily business, 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 11. (Assume there is no difference between the pretax and aftertax accounts payable cost) If the tax rate is 23 percent, what is the NPV of the new plant? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.. 1,234,567.89. Net present value
Transcribed Image Text:4 Landman Corporation (LC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of 63. It's considering building a new $65.3 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.89 million in perpetulty. There are three financing options: a. A new issue of common stock. The required return on the company's new equity is 15.3 percent. b. A new issue of 20-year bonds. If the company issues these new bonds at an annual coupon rate of 7.4 percent, they will sell at par c. increased use of accounts payable financing Because this financing is part of the company's ongoing daily business, 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 11. (Assume there is no difference between the pretax and aftertax accounts payable cost) If the tax rate is 23 percent, what is the NPV of the new plant? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.. 1,234,567.89. Net present value
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