Suppose your company needs $20 million to build a new assembly line. Your target debt-equity ratio is 0.80. The flotation cost for new equity is 9 percent, but the flotation cost for debt is only 6 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? (Round your answer to 4 decimal places. (e. g., 32.16))
Flotation cost %
b. What is the true cost of building the new assembly line after taking flotation costs into account? (Enter your answer in dollars, not millions of dollars, i. e. 1,234,567. Do not round intermediate calculations and round your final answer to the nearest whole dollar amount. (e. g., 32)
Answers (1)
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Suppose your company needs $20 million to build a new assembly line. Your target debt-equity ratio is 0.80. The flotation cost for new ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers
You Might be Interested in
The Barings Bank collapsed in 1995 after it was found that an employee had lost over $1.3 billion of the bank's assets on the market.
Answers (1)
Which one of the following best exemplifies the principal-agent problem in the employer-employee relationship? A worker takes 20-minute coffee breaks although the employer allots only 15 minutes for this purpose.
Answers (1)
The fact that a proposed project is analyzed based on the project's incremental cash flows is the assumption behind which one of the following principles?1. underlying value principle2. stand-alone principle3. equivalent cost principle4.
Answers (1)
All of the following phrases describe a partnership except a. the involvement of up to 20 partners. b. high protection for your personal assets. c. low start-up costs. d. shared responsibility for decisions.
Answers (1)
A specific present value of an ordinary annuity factor for a given number of periods and a specific discount rate is equal to the cumulative sum of the present value of single sum factors over the given number of periods for that discount rate. 1.
Answers (1)
New Questions in Business
Which financial statement shows a company's profits or losses over a period of time?
Answers (1)
Why do companies using a horizontal structure have cultures that emphasize openness, employee empowerment, and responsibility? What do you think a manager's job would be like in a horizontally organized company?
Answers (1)
One year a country has positive net exports. the next year it still has positive but larger net exports a. its trade surplus fell. b. its trade surplus rose. c. its trade deficit fell. d. its trade deficit rose.
Answers (1)
You are the production manager for the toy manufacturing process at the abc company. lumber company right arrow→ abc toy manufacturing company right arrow→ toy store at the mall an example of an internal supplier is a. the toy store at the mall. b.
Answers (1)
g Suppose you have a possible investment that costs $100 today but, starting one year from now, pays $5 in some years with probability 1/3, and in other years pays $10 with probability 1/3, and in other years pays 8$ with probability 1/3.
Answers (1)