Shareholders of financing project out of retained earnings

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Reference no: EM131308823

Axon Industries needs to raise $2500000 USDs for a new investment project. If the firm issues 1-year debt, it may have to pay an interest rate of 6%, although Axon's managers believe that 4% would be a fair rate given the level of risk. If the firm issues equity, they believe the equity may be underpriced by 4%.

A) What is the cost (in USDs) to current shareholders of financing the project out of retained earnings?

B) What is the cost (in USDs) to current shareholders of financing the project out of debt?

C) What is the cost (in USDs) to current shareholders of financing the project out of equity?

Reference no: EM131308823

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