Vijay Photochronograph Corporation (PC) manufactures time series photographic equipment.It is currently at its target debt-equity ratio of 65. It's considering building a new $69million manufacturing facility. This new plant is expected to generate aftertax cash flowsof $6.9 million in perpetuity. The company raises all equity from outside financing. Thereare three financing options:1. A new issue of common stock: The flotation costs of the new common stock would be7.1 percent of the amount raised. The required return on the company's new equity is12 percent.2. A new issue of 20-year bonds: The flotation costs of the new bonds would be 2.3percent of the proceeds. If the company issues these new bonds at an annual couponrate of 4 percent, they will sell at par.3. Increased use of accounts payable financing: Because this financing is part of thecompany's ongoing daily business, it has no flotation costs, and the company assignsit a cost that is the same as the overall firm WACC. Management has a target ratio ofaccounts payable to long-term debt of .20. (Assume there is no difference betweenthe pretax and aftertax accounts payable cost.)What is the NPV of the new plant? Assume that PC has a 22 percent tax rate. (Do notround intermediate calculations and enter your answer in dollars, not millions,rounded to the nearest whole dollar amount, e.g., 1,234,567.)NPV

Name: Vijay Photochronograph Corporation (PC) manufactures time series photo
Uploaded: 2024-03-20T06:50:59.000Z
Channel: Bartleby
Description: Vijay Photochronograph Corporation (PC) manufactures time series photographic equipment.It is currently at its target debt-equity ratio of 65. It's considering building a new $69million manufacturing facility. This new plant is expected to generate a

Net present value is determined by deducting the initial investment from the current value of cash…

Business

Finance

What is the NPV of the new plant? Assume that PC has a 22 percent tax rate. (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole dollar amount, e.g., 1,234,567.) NPV

What is the NPV of the new plant? Assume that PC has a 22 percent tax rate. (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole dollar amount, e.g., 1,234,567.) NPV

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 20P

See similar textbooks

Similar questions

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.…
Landman Corporation (LC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .80 and is considering building a new $45 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $5.7 million a year 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 7.5 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 5 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 8 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.…
Retlaw Corporation (RC) manufactures time-series photographic equipment. It is currently at its target debt-equity ratio of 0.88. It's considering building a new $49 million manufacturing facility. This new plant is expected to generate after-tax cash flows of $8.8 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% of the amount raised. The required return on the company's new equity is 15%. 2. A new issue of 20-year bonds: The flotation costs of the new bonds would be 4% of the proceeds. If the company issues these new bonds at an annual coupon rate of 8.0%, 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 has a target ratio of…
Nikul
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 $41 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $5.3 million in perpetulty. 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 7.1 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 2.7 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 5.7 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.…
Raghubhai
Vijay
Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt-to-equity ratio of 0.56. It is considering building a new $62 million manufacturing facility. This new plant is expected to generate after-tax cash flows of $7.9 million a year in perpetuity. The company raises all equity from outside financing. The required financing will be met by the following: 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 13 percent. 2. A new issue of 25-year bonds. The flotation costs of the new bonds would be 5 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 9 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…
Mansuk
Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .66. It’s considering building a new $65.6 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.45 million in perpetuity. There are three financing options: a. A new issue of common stock: The required return on the company’s new equity is 15.2 percent. b. 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. 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 .12. (Assume there is no difference between the pretax and aftertax accounts payable cost.) If the tax rate is 21 percent, what is the NPV of the…
Landman Corporation (LC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .72. It's considering building a new $66.2 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.87 million in perpetuity. There are three financing options: a. A new issue of common stock. The required return on the company's new equity is 15.4 percent. b. 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. 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 .09. (Assume there is no difference between the pretax and aftertax accounts payable cost.) If the tax rate is 22 percent, what is the NPV of the new plant? Note: A negative…