Shareholders of financing project out of retained earnings

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Axon Industries needs to raise $9.5M (or $9,500,000)for a new investment project. If the firm issues one-year debt, it may have to pay an interest rate of 8%, although Axon's managers believe that 6% would be a fair rate given the level of risk. If the firm issues equity, they believe the equity may be underpriced by 5%.

What is the cost to current shareholders of financing the project out of retained earnings?

Reference no: EM13754364

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