CORP FIN--CONNECT ONLY+PROCTORIO+180 DAY
CORP FIN--CONNECT ONLY+PROCTORIO+180 DAY
12th Edition
ISBN: 9781266118562
Author: Ross
Publisher: MCG
Question
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Chapter 13, Problem 14QAP

a

Summary Introduction

Adequate information:

Debt-equity ratio D/E = 0.65

Debt D = 0.65

Equity E = 1

Capital required K = $43,000,000

Equity flotation cost fe = 6%

Debt flotation cost fd = 2%

To compute: Rationale behind borrowing the entire amount.

Introduction: Borrowing for a new project is a way for the company to finance the new project using external funds which allows the company to use the internal fund for working capital requirements. Debt financing for the entire project changes the capital structure of the company.

b

Summary Introduction

Adequate information:

Debt-equity ratio D/E = 0.65

Debt D = 0.65

Equity E = 1

Capital required K = $43,000,000

Equity flotation cost fe = 6%

Debt flotation cost fd = 2%

To compute: Weighted average flotation cost

Introduction: Weighted average flotation cost is the determination of the proportion of the project to be financed with equity and the proportion to be financed with debt.

c

Summary Introduction

Adequate information:

Debt-equity ratio D/E = 0.65

Debt D = 0.65

Equity E = 1

Capital required K = $43,000,000

Equity flotation cost fe = 6%

Debt flotation cost fd = 2%

To compute: True cost of building a new assembly line

Introduction: Weighted average flotation cost is the determination of the proportion of the project to be financed with equity and the proportion to be financed with debt.

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