ABC Corporation wants to raise $1 million in funds to finance a new project. The company has two options: issue 1,000 bonds with a face value of $1,000 each at an annual interest rate of 6%, or issue 100,000 shares of common stock at a market price of $10 per share. The company expects a net income of $200,000 in the first year and projects a growth rate of 4% per year in the future. Which financing option should the company choose and why?

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The detailed answer for the above question is provided below To determine which financing option is better we need to calculate the cost of capital fo... View the full answer