Allison's Requires $180,000 to Fund a New Project Next Year

question 20

Multiple Choice

Allison's requires $180,000 to fund a new project next year.The firm expects to earn excess cash of $68,000 this year after all expenses,taxes,and dividends are paid.The firm can borrow up to $150,000 at 6.5 percent interest for up to ten years or,it can issue up to 25,000 new shares of stock that will have an estimated value of $35 a share at the end of this year.According to the pecking-order theory,how much will the firm raise in new equity capital to fund this project?

• A)$0
• B)$30,000
• C)$112,000
• D)$90,000
• E)$180,000

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Definitions:

Sales Increase

An upward movement in the quantity sold or the revenue generated from the sale of a product or service over a specific period.

Beta

A measurement of a stock's volatility compared to the overall market volatility, indicating its relative risk.

Annualized Return

Annualized Return indicates the geometric average amount of money earned by an investment each year over a given time period.

Intrinsic Value

The actual, fundamental value of an asset, based on underlying perceptions of its true value including aspects of both tangible and intangible factors.