Question: Company A needs to raise $ 8 . 5 M for a new investment project. If the firm issues one - year debt, it may

Company A needs to raise $8.5M for a new investment project. If the firm issues one-year debt, it may have to pay an interest rate of 12%, although the managers believe that 7.5% would be a fair rate given the level of risk. If the firm issues equity, they believe the equity may be underpriced by 9%. What is the cost to current shareholders of financing the project out of retained earnings, debt, and equity?

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