Suppose your company needs $25 million to build a new assembly line Your target debt to equity ratio is 0 65 The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 3 percent a What is your firms weighted average flotation cost, assuming the same debt to equity ratio...

Suppose your company needs $25 million to build a new assembly line. Your target debt to equity

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Suppose your company needs $25 million to build a new assembly line. Your target debt to equity ratio is 0.65. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 3 percent.

a.What is your firm’s weighted average flotation cost, assuming the same debt to equity ratio?

b. What is the true cost of building new assembly line after taking flotation costs into account?

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Corporate Finance

ISBN: 978-0077861759

10th edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe

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Posted Date: May 25, 2021 07:00 AM

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Suppose your company needs $25 million to build a new assembly line. Your target debt to equity

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