None Retlaw Corporation (RC) manufactures time-series photographic equipment. It is currently at its target debt-equity ratio of 0.83. It'sconsidering building a new $46 million manufacturing facility. This new plant is expected to generate after-tax cash flows of $8.5million 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% of the amount raised. The required returnon the company's new equity is 16%.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 newbonds 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 noflotation costs, and the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio ofaccounts payable to long-term debt of 0.140. (Assume there is no difference between the pre-tax and after-tax accounts payablecost.)What is the NPV of the new plant? Assume that RC has a 35% tax rate. (Enter the answer in dollars. Do not round intermediatecalculations. Round the WACC percentage to 2 decimal places. Round the final answer to 2 decimal places. Omit $ sign in yourresponse.)NPV$

Net present value:Net Present Value (NPV) serves as a vital financial metric used to evaluate the…

Answered: Retlaw Corporation (RC) manufactures…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 20P

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