The Optical World Corporation, a manufacturer of peripheral vision storage systems, needs $10 million to market its

Question:

The Optical World Corporation, a manufacturer of peripheral vision storage systems, needs $10 million to market its new robotics-based vision systems. The firm is considering two financing options: and bonds. If the firm decides to raise the capital through issuing common stock, the flotation costs will be 6%, and the share price will be $25. If the firm decides to use debt financing, it can sell a 10-year, 12% bond with a of $1,000. The bond flotation costs will be 1.9%.
(a) For equity financing, determine the flotation costs and the number of shares to be sold to net $10 million.
(b) For debt financing, determine the flotation costs and the number of $ 1,000 bonds to be sold to net $10 million. What is the required annual interest payment?
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...