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Suppose your company needs $12 million to bulld a new assembly line. Your target debt equity ratio is .4. The fiotation cost for new equity
Suppose your company needs $12 million to bulld a new assembly line. Your target debt equity ratio is .4. The fiotation cost for new equity Is 8 percent, but the flotation cost for debt Is only 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 company's weighted average flotation cost, assuming all equity is raised externally? (Do not round Intermedlete calculations and enter your answer as a percent rounded to 2 declmal 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 Intermedlate calculetions and enter your answer In dollers, not milllons, rounded to the nearest whole dollar amount, e.g., 1,234,5667) a. Flotation cost 96 b. Amount raised
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