Pan-a-Zonic Inc., a cutting-edge drone technology company based in Turabo Valley, has been innovating in the drone market for the past five years. Despite the highly competitive industry landscape, Pan-a-Zonic Inc. has carved out a unique niche for itself with its AI-enabled surveillance drones. Having grown its revenue from $2 million in Year 1 to $18 million in Year 5, Pan-a-Zonic Inc.is considering aggressive expansion into international markets. The company currently has a Debt to Equity (D/E) ratio of 0.8 and a beta of 1.4. The risk-free rate is 2% and the expected market return is at 8%. Pan-a-Zonic Inc. needs $50 million in capital to fund its growth plans, and the management is contemplating whether to raise this amount through equity financing. The company's decision is complicated by the recent entry of a significant competitor, Tech Dynamics, into the market.

Questions

a. Considering the company's current Debt to Equity ratio (0.8), what would be the implications of using further equity to finance the new project? How could this impact Pan-a-Zonic Inc. financial stability, and how might investors perceive this decision?

b. Using the Capital Asset Pricing Model (CAPM), calculate the cost of equity for Pan-a-Zonic Inc. How does the calculated cost of equity impact the decision to undertake the project?

c. Given Pan-a-Zonic Inc.s relatively high beta, how should the company position this in their discussions with potential investors?

d. Given the entrance of TechDynamics into the drone market, how should Pan-a-Zonic Inc.Inc. assess and adjust its expansion plans and its capital raising strategy?

e. Pan-a-Zonic Inc.is also considering whether it should go public in the near future. How should the management team factor this possibility into its current equity financing decision? f. Considering that Pan-a-Zonic Inc.Inc. is contemplating a future Initial Public Offering (IPO), what potential implications could this equity financing round have on the company's IPO, particularly concerning valuation, dilution, and control?