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Suppose your company needs $10M to build a new assembly line. The flotation cost for new equity is 7%, and the flotation cost for new debt is 3%. The company's target debt-to-equity ratio is 0.75. What is the true cost of the new assembly line after taking flotation costs into account? ($10,558,547.14)

Suppose your company needs $10M to build a new assembly line. The flotation cost for new equity is 7%, and the flotation cost for new debt is 3%. The company's target debt-to-equity ratio is 0.75. What is the true cost of the new assembly line after taking flotation costs into account? ($10,558,547.14)

Essentials Of Investments
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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Suppose your company needs $10M to build a new assembly line. The flotation cost for new equity is 7%, and the flotation cost for new debt is 3%. The company's target debt-to-equity ratio is 0.75. What is the true cost of the new assembly line after taking flotation costs into account? ($10,558,547.14)
Transcribed Image Text:Suppose your company needs $10M to build a new assembly line. The flotation cost for new equity is 7%, and the flotation cost for new debt is 3%. The company's target debt-to-equity ratio is 0.75. What is the true cost of the new assembly line after taking flotation costs into account? ($10,558,547.14)
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