Question
The current capital of ABC Inc. consists of 100,000,000 shares. Current share price stands at 27. The management is evaluating a new investment project that
The current capital of ABC Inc. consists of 100,000,000 shares. Current share price stands at 27. The management is evaluating a new investment project that costs 5,000,000. The project will be financed partly by new equity, and partly by debt. As regards new equity, 90,000 new shares will be issued at current share price, with a total issuance cost of 26,000. The rest of the amount will be financed by bonds, at a 5% cost of debt. The corporate tax rate is 40 %. The company is expected to pay dividends of 1.8 per share with a perpetual annual growth rate of 4%. The new share issuance cost per share in Euros, the cost of new equity and the weighted average cost of capital of this project are respectively a. 0.2889 and 0.1074 and 0.0676 b. 0.2889 and 0.0893 and 0.0676 c. 0.2889 and 0.1293 and 0.0832 d. 0.2889 and 0.0674 and 0.0832 e. None of the given answers is correct.
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