UPad Wireless Needs to Raise $10 Million to Build Another

question 37

Multiple Choice

UPad Wireless needs to raise $10 million to build another factory to meet the strong demand for its latest product. UPad will either issue 12% bonds at par or common shares that they have determined that investors require a 15% return. The fair value of UPad's currently outstanding bonds is $5 million, it shares is $5 million, and its preferred shares is $5 million. UPad's retained earnings is $5 million. The preferred shares also have a 12% dividend. UPad's tax rate is 30%. What is the minimum hurdle rate UPad should set for this investment project?

• A) 8.4% if UPad issues bonds to finance the factory.
• B) 11.7% if UPad issues preferred shares to finance the factory.
• C) 12.0% if UPad issues bonds or preferred shares to finance the factory.
• D) 12.6% if UPad issues bonds or preferred shares or common shares to finance the factory.
• E) 15.0% if UPad issues common shares to finance the factory.

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Definitions:

Watery Effluent

A term often used in medical or environmental contexts to describe liquid waste or discharge that is mostly water.

Fecal Stoma

A surgically created opening on the abdominal wall for the elimination of feces from the intestines.

Urinary Stoma

An artificially created opening in the abdominal wall for urine to exit the body, typically after removal of part or all of the urinary bladder.

Noncontinent Urinary Diversion

A surgical procedure to create a new path for urine to leave the body after bladder removal, where the flow of urine cannot be voluntarily controlled.