Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt–equity ratio of...

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Photochronograph Corporation (PC) manufactures time seriesphotographic equipment. It is currently at its target debt–equityratio of .56. It’s considering building a new $71.3 millionmanufacturing facility. This new plant is expected to generateaftertax cash flows of $7.88 million in perpetuity. There are threefinancing options: A new issue of common stock: The required returnon the company’s new equity is 15.1 percent. A new issue of 20-yearbonds: If the company issues these new bonds at an annual couponrate of 7.3 percent, they will sell at par. Increased use ofaccounts payable financing: Because this financing is part of thecompany’s ongoing daily business, the company assigns it a costthat is the same as the overall firm WACC. Management has a targetratio of accounts payable to long-term debt of .14. (Assume thereis no difference between the pretax and aftertax accounts payablecost.) If the tax rate is 38 percent, what is the NPV of the newplant? (A negative answer should be indicated by a minus sign. Donot round intermediate calculations and enter your answer indollars, not millions of dollars, e.g., 1,234,567. Round youranswer to 2 decimal places, e.g., 32.16.)

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Calculating Weights of three sources of capital DebtEquity 056 056 1 We know that Debt Equity total capital So DebtTotal capital DebtEquity Debt 056 156 3590 Also DebtTotal Capital EquityTotal capital 1 EquityTotal capital 1 DebtTotal capital 1 3590 6410 Therefore Weight of equity in total capital 6410 It is know that accounts payable financing long term debt debt We know that accounts payable Long term debt 014 014 1 Accounts payable financing Debt 014 See Answer

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Photochronograph Corporation (PC) manufactures time seriesphotographic equipment. It is currently at its target debt–equityratio of .56. It’s considering building a new $71.3 millionmanufacturing facility. This new plant is expected to generateaftertax cash flows of $7.88 million in perpetuity. There are threefinancing options: A new issue of common stock: The required returnon the company’s new equity is 15.1 percent. A new issue of 20-yearbonds: If the company issues these new bonds at an annual couponrate of 7.3 percent, they will sell at par. Increased use ofaccounts payable financing: Because this financing is part of thecompany’s ongoing daily business, the company assigns it a costthat is the same as the overall firm WACC. Management has a targetratio of accounts payable to long-term debt of .14. (Assume thereis no difference between the pretax and aftertax accounts payablecost.) If the tax rate is 38 percent, what is the NPV of the newplant? (A negative answer should be indicated by a minus sign. Donot round intermediate calculations and enter your answer indollars, not millions of dollars, e.g., 1,234,567. Round youranswer to 2 decimal places, e.g., 32.16.)