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Can I get the detailed answers to the following question?
Can I get the detailed answers to the following question?
Cradle Print Ltd is a Singapore listed company. Currently, its target debt-equity ratio is 1. It is considering building a new $500,000 plant in Kallang Indsutrial Park. This new plant is expected to generate after-tax cash flows of $73,150 per year perpetually. The tax rate is 17%. There are 2 financing options:
- A $600,000 new issue of common stock. The issuance costs of the new common stock would be about 10% of the amount raised. The cost of equity is 20%/.
- A $600,000 issue of 20-year bonds. The issuance costs of the new debt would be 2% of the proceeds. The company can raise new debt at 10%.
(a) Compute the Weighted Average Cost of Capital for Cradle Print Ltd.
(b) Compute the NPV of the new printing plant:
(I) without flotation costs and
(ii) with flotation costs?
Will Cradle Print Ltd accept the new printing plant project in either cases?
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