Trower Corp. has a debt-to-equity ratio of 0.85. The company is considering a new plant that will

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Trower Corp. has a debt-to-equity ratio of 0.85. The company is considering a new plant that will cost $145 million to build. When the company issues new equity, it incurs a flotation cost of 8 percent. The flotation cost on new debt is 3.5 percent.

What is the initial cost of the plant if the company raises all equity externally?

What if it typically uses 60 percent retained earnings? What if all equity investments are financed through retained earnings?

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Corporate Finance

ISBN: 978-0071339575

7th Canadian Edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Gordon Ro

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Question Posted: Jun 17, 2015 04:46 AM

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Trower Corp. has a debt-to-equity ratio of 0.85. The company is considering a new plant that will

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We can use the debtequity ratio to calculate the weights of equity and debt The weight of debt in th...View the full answer

Corporate Finance

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