Suppose your company needs $14 million to build a new assembly line. Your target debt?equity ratio is 0.83. The flotation cost for new equity is 8.5 percent, but the flotation cost for debt is only 3.5 percent.
What is your company's weighted average flotation cost, assuming all equity is raised externally?
What is the true cost of building the new assembly line after taking flotation costs into account?