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Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt−equity ratio of .75. It’s considering building a new $54 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $6.6 million 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 8.4 percent of the amount raised. The required return on the company’s new equity is 15 percent. 2. A new issue of 20-year bonds: The flotation costs of the new bonds would be 3 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 6 percent, 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 flotation costs, and 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 .10. (Assume there is no difference between the pretax and aftertax accounts payable cost.) What is the NPV of the new plant? Assume that PC has a 38 percent tax rate.
Your firm is contemplating the purchase of a new $560,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $56,000 at the end of that time. You will save $280,000 before..
Suppose an investor would like to buy 200 Treasury notes. The investor wants notes with an annual coupon rate of 7%, a 3-year maturity, and semi-annual coupon payments. Assume each Treasury note has a par value of $1,000. Find a costless and riskless..
You plan to make a series of deposits into a interest bearing account earning 11%. You will deposit $2000 today, $3000 two years from today, and $9000 five years from today. If you withdraw $2000 four years from today and $5000 seven years from today..
Fowler Credit Bank is offering 6.6 percent compounded daily on its savings accounts. You deposit $5,000 today. How much will you have in the account in 4 years? Future value $ How much will you have in the account in 12 years? Future value $ How much..
Present Value for Various Compounding Periods. Find the present value of $775 due in the future under each of the following conditions. Round your answers to the nearest cent.
You are saving for the college education of your two children. They are two years apart in age, one will begin college 15 years from today and the other will begin 17 years from today. You estimate your children’s college expenses to be $35,000 per y..
You expect to receive an annuity of $1,000 per year for the next five years. The market rate of interest is 12%. Assuming that you do not spend any of the income at any other time, what is the future value of these payments at the end of five years? ..
Provide common size analysis of your company's income statement and balance sheet for the 2 most recent years (must be done using Excel with formulas).
Assuming Home Depot's 2008 interest expense is $696 million Lowes' interest expense is $239 million and a 36 percent tax rate for both firms, what is their break-even level of operating income.
In 2012, an Action Comics No. 1, featuring the first appearance of Superman, was sold at auction for $1,210,000. The comic book was originally sold in 1938 for $.05. For this to have been true, what was the annual increase in the value of the comic b..
Assume a municipal bond has 18 years until maturity and sells for $5.640 It has a coupon rate of 5.70 percent and it can be called in 10 years. What is the yield to call if the call price is 110 percent of par?
A portfolio is invested 22 percent in Stock G, 37 percent in Stock J, and 41 percent in Stock K. The expected returns on these stocks are 9.5 percent, 12 percent, and 17.4 percent, respectively. What is the portfolio’s expected return?
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