Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose your company needs $ 1 2 million to build a new assembly line. Your target debt - equity ratio is . 4 . The

Suppose your company needs $12 million to build a new assembly line. Your target debt-equity ratio is .4. The flotation cost for new equity is 8 percent and the flotation cost for debt is 5 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small.
a.
What is your companys weighted average flotation cost, assuming all equity is raised externally? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g.,32.16.)
b. What is the true cost of building the new assembly line after taking flotation costs into account? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar amount, e.g.,1,234,567.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Illustrating Finance Policy With Mathematica

Authors: Nicholas L. Georgakopoulos

1st Edition

3319953710, 978-3319953717

More Books

Students also viewed these Finance questions