Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Suppose your company needs $ 1 7 million to build a new assembly line. Your target debt - equity ratio is . 6 5 .
Suppose your company needs $ million to build a new assembly line. Your target debtequity ratio is The flotation cost for new equity is percent, but the flotation cost for debt is only percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small.
a
What is your companys weighted average flotation cost, assuming all equity is raised externally? Do not round intermediate calculations and enter your answer as a percent rounded to decimal places, eg
b What is the true cost of building the new assembly line after taking flotation costs into account? Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, eg
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started