Landman Corporation (LC) manufactures time series photographic equipment. It iscurrently at its target debt-equity ratio of .72. It's considering building a new $66.2 millionmanufacturing facility. This new plant is expected to generate aftertax cash flows of $7.87million in perpetuity. There are three financing options:a. A new issue of common stock. The required return on the company's new equity is15.4 percent.b. A new issue of 20-year bonds: If the company issues these new bonds at an annualcoupon rate of 7.1 percent, they will sell at par.c. Increased use of accounts payable financing: Because this financing is part of thecompany's ongoing daily business, the company assigns it a cost that is the same asthe overall firm WACC. Management has a target ratio of accounts payable to long-term debt of .09. (Assume there is no difference between the pretax and aftertaxaccounts payable cost.)If the tax rate is 22 percent, what is the NPV of the new plant?Note: A negative answer should be indicated by a minus sign. Do not roundintermediate calculations and enter your answer in dollars, not millions of dollars,rounded to 2 decimal places, e.g., 1,234,567.89.Answer is complete but not entirely correct.$1,085,795.95 XNet present value

Net Present Value:Net present value (NPV) is a financial metric used to evaluate the profitability…

Answered: Landman Corporation (LC) manufactures…

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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EuropCar Rental is considering two alternatives for the financing of a purchase of a fleet of cars. These two alternatives are: Issue 60,000 shares of common stock at $45 per share. Issue 12%, 10-year bonds at face value for $2,500,000. It is estimated that the company will earn $750,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 30% and has 90,000 shares of common stock outstanding prior to the new financing. Instructions Determine the eﬀect on net income and earnings per share for these two methods of financing.
Landman Corporation (LC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .78. It’s considering building a new $66.8 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.93 million in perpetuity. There are three financing options: A new issue of common stock: The required return on the company’s new equity is 15.2 percent. A new issue of 20-year bonds: If the company issues these new bonds at an annual coupon rate of 7.1 percent, they will sell at par. 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 .10. (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…
Vijay
man.2
Suppose you have just become the president of J&J and the first decision you face is whether Co go ahead with a plan to renovate the company's Al systems. The plan will cost the company $60 million, and it is expected to save $15 million per year after taxes over the next five years. The firm sources of funds and corresponding required rates of return are as follow: $5 million common stock at 16%, $800,000 preferred stock at 12%, $6 million debt at 7%. All amounts are listed at market values and the firm's tax rate is 30%. You are the financial manager and supposed to calculate the NPV. What's the NPV? Do you recommend taking the project? ง = O NPV $5.167 Millions; I'll recommend the owners to take the project. O NPV=-$1.720 Millions; I'll tell the owners not to take the project. NPV = $4.562 Millions; I'll tell the owners not to take the project. O NPV=-$8.098 Millions; I'll tell the owners not to take the project.
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None
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