Flotation costs are lower-needed funds are relatively small

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Reference no: EM131900803

Suppose your company needs $14 million to build a new assembly line. Your target debt−equity ratio is .6. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 4 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.

Reference no: EM131900803

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