Netflix is currently at its target debt ratio of 40%. It is considering a $1,000,000 expansion of its existing business. This is expansion is expected to produce a cash inflow of $130,000 a year in perpetuity. Netflix is uncertain whether to undertake this expansion and how to finance it. The two options are a $1,000,000 issue of common stock or a $1,000,000 issue of 20-year debt. The flotation costs of a stock issue would be around 5% of the amount raised, and the flotation cost of a debt issue would be around 1.5%. Netflix's financial manager, Carol Baskin, estimates that the required return on the company's equity is 14%, but she argues that flotation costs increases the cost of new equity to 19%. On this basis, the project does not appear valuable. On the other hand, she points out that the company can raise new debt on a 7% yield, which would make the cost of new debt 8.5%. She therefore recommends that Netflix should go ahead with the project and finance an issue of long-term debt. a.) Is Carol correct? Briefly explain why or why not b.) How would you evaluate the project