Suppose that the cost of floating an equity issue for TRANSNATIONAL would be 6%, and the estimated cost of equity would be 12% per year. Suppose also that the issuing cost for corporate bonds would be 2%, and the company would have to pay a fixed rate of interest of 7% annually on the bonds.

(a) What is the expected annualized flotation cost for an issue of equity?

(b) What is the expected annualized flotation cost for an issue of zero-coupon bonds repayable in 10 years?

(c) What would be the net expected annualized flotation cost for equity relative to debt?