If the tax rate is 21 percent, what is the NPV of the new plant?
Chapter14: Capital Structure Management In Practice
Section: Chapter Questions
Problem 24P
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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 |
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 |
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