5.A firm has a target debt/equity ratio of 2 and is considering a new investment project. The project would cost $1M to undertake but the firm has only $250,000 in retained earnings. The remaining $750,000 will be raised by selling bonds. The flotation costs of selling bonds are 5%. The flotation costs of issuing new equity are 12%. The firm has a policy of using only internal financing or debt (or both) for new projects. What is the weighted average flotation cost?

Select one:a. 3.33%b. 6.75%c. 3.75%d. It depends on the yield to maturity.e. None of the above.