Chauhan Corporation has a debt-equity ratio of .90. The company is considering a new plant that will cost $102 million to build. When the company issues new equity, it incurs a flotation cost of 7.2 percent. The flotation cost on new debt is 2.7 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 of dollars, 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 of dollars, 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 of dollars, rounded to the nearest whole number, e.g., 1,234,567.)
Chauhan Corporation has a debt-equity ratio of .90. The company is considering a new plant that will cost $102 million to build. When the company issues new equity, it incurs a flotation cost of 7.2 percent. The flotation cost on new debt is 2.7 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 of dollars, 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 of dollars, 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 of dollars, rounded to the nearest whole number, e.g., 1,234,567.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Chauhan Corporation has a debt-equity ratio of .90. The company is considering a new plant that will cost $102 million to build. When the company issues new equity, it incurs a flotation cost of 7.2 percent. The flotation cost on new debt is 2.7 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 of dollars, 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 of dollars, 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 of dollars, rounded to the nearest whole number, e.g., 1,234,567.) |
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