West Minster Properties Is Considering a Project Which Has an Initial

question 122

Multiple Choice

West Minster Properties is considering a project which has an initial startup cost of $840,000. The firm maintains a debt-equity ratio of .60. The flotation cost of debt is 8 percent and the flotation cost
Of equity is 13 percent. The firm has sufficient internally generated equity to cover the equity cost of
This project. What is the initial cost of the project including the flotation costs?

• A) $865,979
• B) $872,418
• C) $876,082
• D) $803,104
• E) $811,216

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Definitions:

Exchange Rate Risk

The potential for losses resulting from fluctuations in the exchange rate between two currencies in international transactions.

Foreign Exchange Market

A global marketplace for trading currencies, determining the foreign exchange rates for every currency.

Currency

A system of money in general use in a particular country or economic context, facilitating the transfer of goods and services.

London Interbank Offer Rate

An interest rate average calculated from estimates submitted by leading banks in London that indicates the rate at which banks lend to one another.