Photochronograph Corporation (PC) manufactures time series
photographic equipment. It is currently at its target debt-equity
ratio of .59. ItAc??cs considering building a new $71 million
manufacturing facility. This new plant is expected to generate
aftertax cash flows of $7.85 million in perpetuity. There are three
A new issue of common stock: The required return on the
companyAc??cs 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 percent, they will
sell at par.
Increased use of accounts payable financing: Because
this financing is part of the companyAc??cs 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 35 percent, what is the NPV of the new plant?
(Do not round intermediate calculations. Enter your answer
in dollars, not millions of dollars (e.g., 1,234,567). Round your
answer to 2 decimal places (e.g., 32.16).)
| Net present|
This question was answered on: Dec 08, 2020
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