In: Finance
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 $65.5 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.43 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 15.1 percent. |
b. | A new issue of 20-year bonds: If the company issues these new bonds at an annual coupon rate of 7.6 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 .13. (Assume there is no difference between the pretax and aftertax accounts payable cost.) |
If the tax rate is 25 percent, what is the NPV of the new plant? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) |