Your Company Is Considering a Project That Will Cost $100

question 114

Multiple Choice

Your company is considering a project that will cost $100. The project will generate after-tax cash flows of $37.50 per year for five years. The WACC is 10 percent and the firm's D/A ratio is 0.40. The flotation cost for equity is 3 percent, the flotation cost for debt is 2 percent, and your firm does not plan on issuing any preferred stock within its capital structure. If your firm follows the practice of incorporating flotation costs into the project's initial investment, what is the weighted average flotation cost for the firm?

• A) 2.6 percent
• B) 3.2 percent
• C) 3.7 percent
• D) 4.1 percent

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Definitions:

Anxiety Disorder

Anxiety Disorder is a mental health condition characterized by excessive fear or worry that affects one's daily activities.

Statistically Significant

A mathematical indication that a result is not likely to have occurred by chance, suggesting a true difference or effect exists.

Rosenthal Effect

The general finding that the results of any experiment often conform to the expectations of the experimenter.

Masked Design

A research design where the participants do not know which treatment group they are in to prevent bias; also known as blind design.