Let's say a company is planning to expand by requiring significant capital infusion. Let's say that the riskless rate of return, market risk premium, and beta are given. There are two options of potential investors/creditors. If the investor is offering to provide $10 million of equity capital in exchange for an ownership interest; while the creditor is offering to provide $10 million of debt capital that would be repayable in equal annual installments over 5 years at an interest rate of 7%, which option should the company choose to get the capital infusion: the investor or creditor? What are the factors that we should consider in choosing between these 2 options?

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The company should consider the following factors when choosing between the two options Cost of capi... View the full answer