Marietta Corp needs to raise $100 million for a new investment project. Marietta plans to issue debt with a maturity of 1 year to finance the new project. Marietta will have to pay an interest rate of 9.7% on this debt, although Marietta's managers believe that 6.5% would be a fair rate given the level of risk. If Marietta finances the project with debt, then the cost to current shareholders of financing the project will be closest to: A) $106.5 million B) $103.0 million C) $109.7 million D) $100.0 million
Marietta Corp needs to raise $100 million for a new investment project. Marietta plans to issue debt with a maturity of 1 year to finance the new project. Marietta will have to pay an interest rate of 9.7% on this debt, although Marietta's managers believe that 6.5% would be a fair rate given the level of risk. If Marietta finances the project with debt, then the cost to current shareholders of financing the project will be closest to: A) $106.5 million B) $103.0 million C) $109.7 million D) $100.0 million
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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Answer is B
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Transcribed Image Text:Marietta Corp needs to raise $100 million for a new investment project. Marietta plans
to issue debt with a maturity of 1 year to finance the new project. Marietta will have to
pay an interest rate of 9.7% on this debt, although Marietta's managers believe that 6.5%
would be a fair rate given the level of risk. If Marietta finances the project with debt,
then the cost to current shareholders of financing the project will be closest to:
A) $106.5 million
B) $103.0 million
C) $109.7 million
D) $100.0 million
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