Suppose your company needs $20 million to build a new assembly line. Your target debt-to-equity ratio is 0.75. The flotation cost fo new equity is 7 percent, but the flotation cost for debt is only 3 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. b. What is your company's weighted average flotation cost, assuming all equity is raised externally? (Do not round Intermediate calculations. Round the final answer to 2 decimal places.) Flotation cost c. What is the true cost of building the new assembly line after taking flotation costs into account? (Do not round Intermediate calculations. Round the final answer to the nearest whole dollar. Enter the answer in dollars. Omit $ sign in your response.) Amount raised $[ %

Suppose your company needs $20 million to build a new assembly line. Your target debt-to-equity ratio is 0.75. The flotation cost fo new equity is 7 percent, but the flotation cost for debt is only 3 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. b. What is your company's weighted average flotation cost, assuming all equity is raised externally? (Do not round Intermediate calculations. Round the final answer to 2 decimal places.) Flotation cost c. What is the true cost of building the new assembly line after taking flotation costs into account? (Do not round Intermediate calculations. Round the final answer to the nearest whole dollar. Enter the answer in dollars. Omit $ sign in your response.) Amount raised $[ %

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 21P: Your division is considering two investment projects, each of which requires an up-front expenditure...

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Suppose your company needs $11 million to build a new assembly line. Your target debt- equity ratio is .35. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 4 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 company's weighted average flotation cost, assuming all equity is raised externally? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 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, e.g., 1,234,567.) a. Flotation cost b. Amount raised %
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suppose your company needs $43 million to build a new assembly line. your target debt-equity ratio is .75. the flotation cost for new equity is 6 percent, but the flotation cost for debt is only 2 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.
You are considering an investment in a clothes distributer. The company needs $105,000 today and expects to repay you $120,000 in a year from now. What is the IRR of this investment opportunity? Given the riskiness of the investment opportunity, your cost of capital is 17%. What does the IRR rule say about whether you should invest? What is the IRR of this investment oppurtunity? The IRR of this investment opppurtunity is ____%
Suppose your company needs $10 million to build a new assembly line. Your target debt-equity ratio is 3.0. The flotation cost for new equity is 20%, but the flotation cost for debt is only 5%. 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 do you think about the rationale behind borrowing the entire amount? b) What is the true cost of building the new assembly line after taking flotation costs into account?
Your division is considering two investment projects, each of which requires an up-front expenditure of 25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): a. What is the regular payback period for each of the projects? b. What is the discounted payback period for each of the projects? c. If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake? d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake? f. What is the crossover rate? g. If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?
Your company is currently considering two investment projects. Each project requires an upfront expenditure of $25 million. You estimate that the cost of capital is 10% and the investments will produce the after tax cash flows on the attached image . a)Calculate the payback period for both projects,then compare to identify which project the firm should undertake. b)Evaluate the advantages and disadvantages of using the payback method in investment decisions and assess the situations where it should be used .
You are considering an investment in a clothes distributer. The company needs $106,000 today and expects to repay you $124,000 in a year from now. What is the IRR of this investment opportunity? Given the riskiness of the investment opportunity, your cost of capital is 15%. What does the IRR rule say about whether you should invest? What is the IRR of this investment opportunity? The IRR of this investment opportunity is %. (Round to two decimal places.)