Suppose your company needs $20 million to build a new assembly line. Your target debtequity ratio is
Question:
a. What do you think about the rationale behind borrowing the entire amount?
b. What is your company’s weighted average flotation cost, assuming all equity is raised externally?
c. What is the true cost of building the new assembly line after taking flotation costs into account? Does it matter in this case that the entire amount is being raised from debt?
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Related Book For
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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