Company weighted average flotation cost

Assignment Help Financial Management

Reference no: EM131178714

Suppose your company needs $20 million to build a new assembly line. Your target debt−equity ratio is 0.80. The flotation cost for new equity is 9 percent, but the flotation cost for debt is only 6 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small.

a. What is your company’s weighted average flotation cost, assuming all equity is raised externally? (Round your answer to 4 decimal places. (e.g., 32.16))

Flotation cost %

b. What is the true cost of building the new assembly line after taking flotation costs into account? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.(e.g., 32)

Amount raised $

Reference no: EM131178714

Questions Cloud

Prepare cash budget for saginaw concrete : Saginaw Concrete is attempting to estimate their financial needs for the first 6 months of 2010. The credit department estimates the collections as follows: collections within the month of sale, 20 percent; collections the month following the sale, 4..

Recycle paper to save the environment : Paper is the requirement of daily need in today's world. Paper is made from the pulp of wood. And for this reason every year millions of trees are cut around the world to fulfill our demand for paper. Recycling paper is the only method to save trees ..

What conclusion do these percentage returns imply : Investor A makes a cash purchase of 100 shares of AB&C common stock for $55 a share. Investor B also buys 100 shares of AB&C but uses margin. Each holds the stock for one year, during which dividends of $5 a share are distributed. If the margin requi..

The pension fund from fluctuations in interest rates : You are to design for a small pension fund a bond portfolio to fund a $10 million obligation due in 4 years. The fund managers would like to use a 2-year zero along with an 8-year zero to fund the obligation. Currently, the yield curve is flat at aro..

Company weighted average flotation cost : Suppose your company needs $20 million to build a new assembly line. Your target debt−equity ratio is 0.80. The flotation cost for new equity is 9 percent, but the flotation cost for debt is only 6 percent. What is your company’s weighted average flo..

Subtract the loan payment from the lease payment : Sutton Corporation, which has a zero tax rate due to tax loss carry-forwards, is considering a 5-year, $6,000,000 bank loan to finance service equipment. The loan has an interest rate of 10% and would be amortized over 5 years, with 5 end-of-year pay..

Capital structure shift change the firm cost of equity : Paxon Corporation uses no debt, its beta is 1.10, and its tax rate is 40%. However, the CFO is considering moving to a capital structure with 30% debt and 70% equity. If the risk-free rate is 5.0% and the market risk premium is 8.0%, by how much woul..

Interpret the equations : You plan to take out a 30-year fixed rate mortgage for $100,000. Let P(r) be your monthly payment if the interest rate is f% per year, compounded monthly. Interpret the equations (a) P(3) = 421.60 and (b) P'(3) = 53.93.

Liquidity and aturity risk premiums are zero : Assume that the expectations theory holds, and that liquidity and aturity risk premiums are zero, If the annual rate of interest on a 2year Treasury bond is 10.5% and the rate on a 1-yearTreasury ond that is issued today is 12% , What rate of interes..

User Account

All Pages