Yesteryear Productions Is Considering a Project with an Initial Start

question 26

Multiple Choice

Yesteryear Productions is considering a project with an initial start up cost of $960,000.The firm maintains a debt-equity ratio of 0.50 and has a flotation cost of debt of 6.8 percent and a flotation cost of equity of 11.4 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)$979,417
• B)$982,265
• C)$992,386
• D)$1,038,513
• E)$1,065,089

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Definitions:

Milgram

Refers to Stanley Milgram, a psychologist known for conducting experiments on obedience to authority figures.

Obedience

The act of following orders or directions from a figure of authority, often without question.

Conducted

The process through which something such as electricity, heat, or sound is transmitted or guided along a path.

Lowball Procedure

A technique used in sales and negotiation that involves initially quoting a lower price and then raising it after the buyer has accepted the offer.