Your Company Is Considering a Project That Will Cost $100

question 16

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 percent and the firm's D/A ratio is 0.35. The flotation cost for equity is 5 percent, the flotation cost for debt is 2 percent, 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) 2.95 percent
• B) 3.15 percent
• C) 3.95 percent
• D) 4.80 percent

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Definitions:

Wage Gap

The difference in average earnings between different groups of workers, often highlighted between genders, races, or socioeconomic statuses.

Third-party Sources

External entities or individuals that provide information, services, or products to an organization, not directly related to its internal workforce or resources.

Compensation Data

Information regarding the pay rates, salary structures, benefits, and perks provided to employees within an organization or across a specific labor market.

Labour Market

The supply of and demand for labor, where employers seek to hire workers, and individuals seek employment.