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Company a needs to raise 8.5 million for a new project. If the firm issues one year debt., it may have to pay an interst
Company a needs to raise 8.5 million for a new project. If the firm issues one year debt., it may have to pay an interst rate of 12%, although the managers believe that 7.5% would be a fair rate given the level of risk. If the firm issues equit, they believe the equity may be underpriced by 9%. What is the cost to current share holders of financing this project out of retained earning, debt and equity?
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