Weighted average flotation cost

Assignment Help Financial Management
Reference no: EM131319668

Suppose your company needs $18 million to build a new assembly line. Your target debt−equity ratio is .8. The flotation cost for new equity is 11 percent, but the flotation cost for debt is only 8 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? (Round your answer to 2 decimal places. (e.g., 32.16))

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, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.(e.g., 32)

Reference no: EM131319668

Questions Cloud

Binomial distribution to determine this : The probability that a light bulb of a given brand is faulty is .1. You want to find the probability that fewer than 5% of a shipment of 1000 light bulbs is faulty. Use the Binomial Distribution to determine this.
What is the yield to maturity on the bond : A noncallable bond has an original maturity of 20 years, an 9% coupon rate (coupons paid annually), and a face value of $1.000. The bond was issued exactly 5 years ago. If the bond is traded at $1.200 today, what is the yield to maturity on the bond?
Functions properly during one period of operation : The probabilities of failures for the components 1 and 2 during one period of operation are .15 and .07 respectively, and the component failures are independent. What is the probability that the system functions properly during one period of oper..
Describe the most effective advanced filtering : Describe the most effective advanced filtering and search interface. Argue why the interface you chose is more effective than others, and describe who benefits most from the interface you are describing.
Weighted average flotation cost : Suppose your company needs $18 million to build a new assembly line. Your target debt−equity ratio is .8. The flotation cost for new equity is 11 percent, but the flotation cost for debt is only 8 percent. What is your company’s weighted average flot..
Lower number of purchases : What type of t test should be used to decide if there was a significantly lower number of purchases made while the signs were displayed? Using the results provided, tell me if the results were significant (and why)?
Design an error-correcting code : Hamming code can correct any one error; might there be a (14, 8) code that can correct any two errors? Optional extra: Does the answer to this question depend on whether the code is linear or nonlinear?
Subtracting imports from exports : Net Exports are calculated by subtracting Imports from Exports. Assume Exports and Imports are independent of one another.  If mean exports are $25M with a standard deviation of $3.5M and mean imports are $30M with a standard deviation of $5M, wha..
Which of the following statements is true regarding treating : Which of the following statements is true regarding treating risks?After you've addressed a risk, it is important to appoint someone to make certain that the risk treatment is being regularly applied so that if a security incident arises, that pers..

Reviews

Write a Review

Financial Management Questions & Answers

  Assigned change leadership roles and relationships

In "Assigned Change Leadership Roles & Relationships," the sponsor is typically -

  What is the price of the bond

A bond has a coupon rate of 9.8 percent and 11 years until maturity. If the yield to maturity is 8.2 percent, what is the price of the bond?

  Buying situations influence organizational purchasing

What are the key characteristics of organizational buying that make it different from consumer buying? Explain how buying centers and buying situations influence organizational purchasing?

  Average interest rate provide you the average return

Consider that you are the manager of a bank and you face a potential loan applicants pool made up of equal amounts of low risks and high risks, will charging an average interest rate provide you the average (expected) return? Explain.

  Power plant on island is producing too much air pollution

You can pay a pollution tax (Carbon Offsets) onetime of $13,000,000 immediately. You can close the plant and install a power cable from the mainland to the Island. That will cost you $1,000,000 at the end of this year, $3,000,000 at the end of next y..

  What is projected dividend for coming year-rapid growth

Frey Corp. is experiencing rapid growth. Dividends are expected to grow at 26 percent per year during the next three years, 16 percent over the following year, and then 9 percent per year indefinitely. The required return on this stock is 11 percent,..

  Violation of weak form efficiency

Which among the following is a violation of weak form efficiency?

  Mortgage balance at the lower rate for same maturity date

Consider a 30-year, $140,000 mortgage with a rate of .0620 percent. Thirteen years into the mortgage, rates have fallen to 5 percent. What would be the monthly saving to a homeowner from refinancing the outstanding mortgage balance at the lower rate ..

  Calculate the cash flow to capital expenditures ratio

Using the data in this chapter for the Exemplar Company for fiscal year 20X2 and the cash flow from operations as the measure of cash flow, calculate the Cash flow to capital expenditures ratio.

  Dividend check you will get next time dividend is paid

Fuller Preferred has a nominal rate of 3% with a par value of $3.75. You just bought 3 round lots at a quote of 12.65. What is the dividend check you will get the next time a dividend is paid?

  Issuance costs for external finances

Ford Motors expects a new hybrid-engine project to produce incremental cash flows of $74 each year and expects these to grow at a rate of 0.05 each year. The upfront project costs are $559 and Ford's weighted average cost of capital is 0.07. If the i..

  Function of finance manager

Function of finance Manager and profit maximization does consider the impact on individual shareholder's EPS.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd