What is firm cost of capital and firm flotation cost

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Reference no: EM131817822

Suppose ABC Company is considering opening another office. The expansion will cost $50K and is expected to generate after-tax cash flows of $10K per year in perpetuity. The firm has a target debt/equity ratio of .5. New equity has a flotation cost of 10% and a required return of 15%, while new debt has a flotation cost of 5% and a required return of 10%. The tax rate is 34%. What is the firm’s cost of capital? What is the firm’s flotation cost? What is the amount that ABC will have to raise, given flotation costs, to finance its $50K investment? What is the NPV of this investment?

Reference no: EM131817822

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