You are a new intern at CycleNOW Inc., and the company is considering expending into Quebec....

 

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You are a new intern at CycleNOW Inc., and the company is considering expending into Quebec. The expansion is estimated to cost $12,000,000 for a new production facility. You have gathered the following information for the company: • The firm has a target (optimal) D/E ratio = 1.4 • The firm does not have enough internally funds to finance the equity portion of this project. • Flotation costs are expected to be as follows: new debt-5.5% and new common shares = 7.7%. • Assume flotation costs are expensed at time = 0. Tax rate = 40% What is the total initial investment for this project? You are a new intern at CycleNOW Inc., and the company is considering expending into Quebec. The expansion is estimated to cost $12,000,000 for a new production facility. You have gathered the following information for the company: • The firm has a target (optimal) D/E ratio = 1.4 • The firm does not have enough internally funds to finance the equity portion of this project. • Flotation costs are expected to be as follows: new debt-5.5% and new common shares = 7.7%. • Assume flotation costs are expensed at time = 0. Tax rate = 40% What is the total initial investment for this project?

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To calculate the total initial investment for this project we need to consider both the debt a... View the full answer