Question

newconnect.mheducation.com Ch 14) Saved Suppose your company needs $17 million to build a new assembly line. Your target debt-equity ratio is .75. The flotation cost for new equity is 10 percent, but the flotation cost for debt is only 7 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? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) nk 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, e.g. 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole dollar amount, e.g., 32.) nt ences Amount raised 12 of 12 Score answer> <Prey

Answer 1

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File Home Insert Page Layout Formulas Data Review View Add-Ins Cut Ea Copy - AutoSum General A A Wrap Text Calibri 11 Fill в I- . A Merge & Center Conditional Format Insert Delete Format Paste Cell Sort & Find & Format Painter Clear ble Styles er Select Formatting Clipboard Font Alignment Number Shules Cells Editing Y915 T U V W X Y Z 903 904 DEBT EQUITY RATIO 0.75 WEIGHT OF DEBT= 0.75/1.75 905 0.4286 906 WEIGHT OF EQUITY = 0.5714 907 a ALL EQUITY WEIGHTED AVERAGE OF FLOTATION COSTS = WEIGHT OF EQUITY* FLOTATION COST WEIGHT OF DEBT * FLOTATION COST 908 WEIGHTED AVERAGE OF FLOTATION COSTS 0.5714*10% +0.4286*7% 909 910 WEIGHTED AVERAGE OF FLOTATION COSTS (f)= 8.714286% WEIGHTED AVERAGE OF FLOTATION COSTS (f)= 911 8.71% 912 AMOUNT TO BE RAISED COST OF PLANT/(1-f) 170000000/(1-0.08714286) 913 914 AMOUNT TO BE RAISED = AMOUNT TO BE RAISED 915 186228482 916 917 918 919 920 921 HKE CAPM UTILITY, SHARPE, beta DGM RESI ex di YIELD bond portfolc cap stru WACC 130% 14 bond covexty port future INDEX INTL CAP BUD LEASING PV, FV, ANNUITY DIR right clean Re erences: KN82 04:33 ENG 08-06-2019