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 $69 million manufacturing facility. this new plant is expected to generate aftertax cash flows of $6.9 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 7.1 percent of the amount raised. the required return on the company’s new equity is 12 percent.
2. a new issue of 20-year bonds: the flotation costs of the new bonds would be 2.3 percent of the proceeds. if the company issues these new bonds at an annual coupon rate of 4 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 .20. (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 21 percent tax rate. (do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e. g., 1,234,567.)