Your company is developing a new sports watch, and will need $15 million to finance research, production, and distribution costs. You plan to receive $2.5 million from private investors at a rate of 6.5%, $5.5 million through bond sales at 6%, and will borrow the rest from banks. If your Weighted Average Cost of Capital cannot exceed 10%, what is the maximum interest rate that your company can afford to pay to the banks?
Your company is developing a new sports watch, and will need $15 million to finance research, production, and distribution costs. You plan to receive $2.5 million from private investors at a rate of 6.5%, $5.5 million through bond sales at 6%, and will borrow the rest from banks. If your Weighted Average Cost of Capital cannot exceed 10%, what is the maximum interest rate that your company can afford to pay to the banks?
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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Transcribed Image Text:Your company is developing a new sports watch, and will need $15 million to finance research,
production, and distribution costs. You plan to receive $2.5 million from private investors at a rate of
6.5%, $5.5 million through bond sales at 6%, and will borrow the rest from banks. If your Weighted
Average Cost of Capital cannot exceed 10%, what is the maximum interest rate that your company can
afford to pay to the banks?
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