How much would the industry save by raising all of the debt

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Reference no: EM1320372

Q. Europe Corporation is financing an ongoing construction project. The industry will need $5,000,000 of new capital during each of the next three years. The industry has a choice of issuing new debt or equity each year as the funds are needed, or issue only debt now also equity later. Its target capital structure is 40 percent debt also 60 percent equity also it wants to be at that structure in three years, when the project has been completed. Debt flotation costs for a single debt issue would be 1.6 percent of the gross debt proceeds. Yearly flotation costs for three separate issues of debt would be 3.0 percent of the gross amount. Ignoring time value effects, Elucidate how much would the industry save by raising all of the debt now, in a single issue, rather than in three separate issues?

Reference no: EM1320372

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