1) Cradle Print Ltd is the company listed on Singapore Exchange. Presently, its target debt-equity ratio is 1. It is thinking of building new $600,000 plant in Kallang Industrial Park. New plant is expected to make after-tax cash flows of= $73,150 per year perpetually. Tax rate is= 17%. It plans to finance the said acquisition as follows:
i) A $300,000 new issue of common stock. Issuance costs of new common stock would be about= 10% of amount rose. Required return of company’s new equity is= 20%.
ii) A $300,000 issue of 20-year bonds. Issuance costs of new debt would be 2% of proceeds. Company can raise new debt at 10%.
a) find out Weighted Average Cost of Capital of Cradle Print Ltd.
b) Compute Net Present Value (NPV) of new printing plant based on WACC:
(i) Without flotation costs; and
(ii) With flotation costs.
Will Cradle Print Ltd accept new printing plant project in either case?