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What is the NPV of the new prant? Assume that RC has a 40% tex rate Enter the answer in dollars. Do not round intermediate calcul ens Round the WACC percentage to 2 decimal pieces Bound the final anewer to 2 decimal places. On Sign in your NPV

What is the NPV of the new prant? Assume that RC has a 40% tex rate Enter the answer in dollars. Do not round intermediate calcul ens Round the WACC percentage to 2 decimal pieces Bound the final anewer to 2 decimal places. On Sign in your NPV

Essentials Of Investments
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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Retlaw Corporation (RC) manufactures time-series photographic equipment. It is currently at ts target debt-equity ratio of 074 its considering building a new 548 million manufacturing facility. This new plant is expected to generate sher-tax cash flows of $4 milion 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% of the amount raised. The required retur on the company's new equity is 14% 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 80%, 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 fotation costs, and the company assigns it a cost that is the same as the overall frm WACC Management has a target ratio of accounts payable to long-term debt of 0135 (Assume there is no difference between the pre-tax and after-tax accounts payable cost) What is the NPV of the new plant? Assume that RC has a 46% tax rate (Enter the answer in deitars. De not round Intermediate calculations, Round the WACC percentage to 2 decimal pieces. Bound the final answer to 2 decimat pisces. Ons s sign in your response) NOV
Transcribed Image Text:Retlaw Corporation (RC) manufactures time-series photographic equipment. It is currently at ts target debt-equity ratio of 074 its considering building a new 548 million manufacturing facility. This new plant is expected to generate sher-tax cash flows of $4 milion 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% of the amount raised. The required retur on the company's new equity is 14% 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 80%, 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 fotation costs, and the company assigns it a cost that is the same as the overall frm WACC Management has a target ratio of accounts payable to long-term debt of 0135 (Assume there is no difference between the pre-tax and after-tax accounts payable cost) What is the NPV of the new plant? Assume that RC has a 46% tax rate (Enter the answer in deitars. De not round Intermediate calculations, Round the WACC percentage to 2 decimal pieces. Bound the final answer to 2 decimat pisces. Ons s sign in your response) NOV
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