Will you invest in company if there were no flotation costs

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Reference no: EM131546744

You are the manager of The Upper Tier, a company that has a target debt-equity ratio of .45. The company is considering a project with an initial investment of $1,000,000. The present value of the future cash flows of the project is $1,050,000. The cost of floating equity is 9.5% and the flotation cost of debt is 6.6%.

The average weighted flotation cost is 8.6%.

The firm must raise $1,094,113.45 to invest in the project.

Will you invest in the company if a) there were no flotation costs or b) there were flotation costs, and why/why not?

Reference no: EM131546744

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