Question
Suppose you are a CFO of a retail business, which is cash rich from Operation Cash flows. Your firm is going to finance a new
Suppose you are a CFO of a retail business, which is cash rich from Operation Cash flows. Your firm is going to finance a new warehouse project with two options:
Option 1: 50% of debt and 50% of equity;
Option 2: 70% of debt and 30% of equity;
As a CFO you need to make the capital structure decision. Which option you will choose and why? (Suppose your company credit rating is A- and your bond issuance cost is around 5% before tax, your tax rate is around 20% and your shareholders dividend requirement is around 4%). (300 words limit with bulletin points to answer the above questions Marks: 40)
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