Your Company Is Considering a Project That Will Cost $100

question 78

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% and the firm's D/A ratio is .70. The flotation cost for equity is 6%, the flotation cost for debt is 3%, 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) 2.90%
• B) 3.90%
• C) 3.30%
• D) 4.30%

---

Definitions:

Substantially Certain

A criteria used in law indicating when an action is almost sure to result in a particular outcome, often used in tort law to assess intentionality.

Defamatory Communication

It refers to the act of making false statements about someone that harm their reputation.

Libel

Written defamation that unjustly harms someone's reputation.

Battery

An intentional and unlawful physical act that results in contact with another person without their consent.