Company weighted average flotation cost


Problem:

Suppose your company needs $12 million to build a new assembly line. Your target debt?equity ratio is 0.50. The flotation cost for new equity is 12 percent, but the flotation cost for debt is only 9 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.

Required:

Question 1: What is your company's weighted average flotation cost, assuming all equity is raised externally?

Question 2: What is the true cost of building the new assembly line after taking flotation costs into account?

Note: Please show guided help with steps and answer.

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Accounting Basics: Company weighted average flotation cost
Reference No:- TGS0885441

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