Chauhan Corporation has a debt-equity ratio of .9. The company is considering a new plant that will cost $119 million to build. When the company issues new equity, it incurs a flotation cost of 8.9 percent. The flotation cost on new debt is 4.4 percent. a. What is the initial cost of the plant if the company raises all equity externally? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the initial cost of the plant if the company typically uses 60 percent retained earnings? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.) c. What is the initial cost of the plant if the company typically uses 100 percent retained earnings? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.) a. Initial cash flow b. Initial cash flow c. Initial cash flow $ 130,650,000
Chauhan Corporation has a debt-equity ratio of .9. The company is considering a new plant that will cost $119 million to build. When the company issues new equity, it incurs a flotation cost of 8.9 percent. The flotation cost on new debt is 4.4 percent. a. What is the initial cost of the plant if the company raises all equity externally? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the initial cost of the plant if the company typically uses 60 percent retained earnings? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.) c. What is the initial cost of the plant if the company typically uses 100 percent retained earnings? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.) a. Initial cash flow b. Initial cash flow c. Initial cash flow $ 130,650,000
Chapter11: The Cost Of Capital
Section: Chapter Questions
Problem 20PROB
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VIEWStep 2: a. Calculate Initial Cash Flow if the company raises all equity externally:
VIEWStep 3: b. Calculate Initial Cash Flow if the company uses 60% retained Earnings:
VIEWStep 4: c. Calculate Initial Cash Flow if the company uses 100% retained earnings:
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