Question: (Short Answer Question - Chapter 13). Use the following information to answer questions 9-12. If you do not know a particular answer please make a

(Short Answer Question - Chapter 13). Use the following information to answer questions 9-12. If you do not know a particular answer please make a reasonable assumption and state that you have assumed the answer.

You are the CEO of Caesar Little. You are considering purchasing a machine that costs $750,000 for a project. The annual cash flow of the project is 81,000 that continues forever (perpetuity) and the discount rate is 8.1 percent. The company can issue equity at a flotation cost of 7.5 percent and debt at 4.5 percent. The firm currently has a debt-equity ratio of 0.45. The firm is considering two scenarios. First, all funds will be raised externally.

Second, forty (40) percent of equity will come from retained earnings (internal sources).

What should the firm use as the weighted average flotation cost for the two scenarios?

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