Machina Corporation is financing an ongoing construction project. The firm needs $8 million of new capital during each of the next three years. The firm has a choice of issuing new debt and equity each year as the funds are needed, or issuing the debt now and the equity later. The firm's capital structure is 40 percent debt and 60 percent equity. Flotation costs for a single debt issue would be 1.6 percent of the gross debt proceeds. Yearly flotation costs for three separate issues of debt would be 3.0 percent of the gross amount. Ignoring time value effects due to timing of the cash flows, what is the absolute difference in dollars saved by raising the needed debt all at once in a single issue rather than in three separate issues? a. SO b. $171,387 c. $140,809 d. $156,098 e. $134,400 2. Suppose the Federal Reserve increases deposits at financial institutions by S50 billion through its open market operations. If the reserve requirement for all deposits is 8%, what is the maximum impact the Fed's actions can have on total deposits? a. S575 billion increase b. $54.3 billion increase c. $625 billion increase d. An increase greater than $1 trillion e. Total deposits would decrease, but there is not enough information to compute the amount. 3. The Federal Reserve has decided it wants to increase interest rates by decreasing the money supply through deposits held at financial intermediaries. All else equal, if the reserve requirement is 10% for all deposits, and the Fed wants to decrease deposits by $100 million, which of the following actions should be taken? Assume no excess reserves exist in the banking system. a. Buy government securities from dealers totaling $1 billion. b. Sell government securities to dealers totaling S111 million. c. Buy government securities from dealers totaling $11.1 million. d. Sell government securities to dealers totaling $11.1 million. e. None of the above