Your fiRm Is Considering a Project Which Requires an Initial

question 290

Multiple Choice

Your firm is considering a project which requires an initial investment of $5 million. Your target D/E ratio is 0.67. Flotation costs for equity are 8% and flotation costs for debt are 2%. What is the true
Cost (in dollars) of the project when you consider flotation costs?

• A) $5.00 million
• B) $5.24 million
• C) $5.30 million
• D) $5.57 million
• E) $5.61 million

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Definitions:

Cash Flows

Cash flows denote the movement of money into and out of an enterprise, playing a crucial role in assessing its operational efficiency and financial stability.

Statement of Comprehensive Income

A financial report detailing all variations in equity over a period, excluding those changes caused by investments from and distributions to shareholders.

Self-sustaining

Capable of continuing or maintaining itself independently without external assistance.

Cash Flow from Assets

The total amount of money being transferred in and out of a company from its operational activities, investment activities, and financing activities, specifically related to its assets.