I: Dixon Corporation’s problem
In October 1979, Dixon Corporation (Dixon), a specialty chemical company in US, is considering the purchase of a sodium chlorate plant located in Collinsville, Alabama. The Collinsville plant is now managed by American Chemical Corporation (American), one of largest diversified chemical companies in US. Acquisition of the Collinsville plant fit well with Dixon’s strategy of supplying chemicals to paper and pulp industry.

Dixon and American had reached an agreement of $12 million purchase price to acquire the Collinsville plant’s net asset. As a part of the deal, American would give Dixon an ongoing technical support of the laminate technology, a new technology developed by American to reduce the power cost by 15% to 20% and eliminate graphite cost. American ensured to realize laminate technology and make it available to the Collinsville plant. The installation of laminate was scheduled for December 1980 and would charge Dixon $2.5 million, one-time cost depreciated over a period of 10 years.

Dixon planned to fund the $12 million purchase price entirely with debt capital. This funding plan would temporarily increase Dixon’s book debt-to-total capital ratio to approximately 47% and would initially raise Dixon’s book debt ratio above its target deb ratio for the consolidated company of 35%.

To determine the viability of the acquisition, Dixon needs to conduct net present value (NPV) analysis to determine whether Dixon can purchase Collinsville plant and whether Dixon can invest laminate technology. Under the NPV analysis, Dixon will know if the acquisition will increase the shareholder’s profit or will lead the company to financial difficulties.

II: Discussion
To calculate NPV, Dixon will need to determine the appropriate weighted average cost of capital (WACC) which used as the discounted rate to compute the present