Question
A company needs to purchase equipment for a project with total cost of $2 million. It is estimated that the after-tax cash inflows from the
A company needs to purchase equipment for a project with total cost of $2 million. It is estimated that the after-tax cash inflows from the project will be $210,000 annually in perpetuity.The company has a debt-to-assets ratio of 43.80% using market values. The firm's cost of equity is 14.50%, its pre-tax cost of debt is 9.50%, and the flotation costs of debt and equity are 4.80% and 10.60%, respectively. The tax rate is 34%. Assume the project is of similar risk to the firm's existing operations.What is the weighted average flotation cost for the company?
7.86%
8.06%
8.26%
8.46%
8.66%
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