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:

Place of Delivery

The specific location agreed upon by the seller and the buyer where the goods will be delivered and ownership is transferred.

Warehouse

A large building where goods are stored before they are distributed for sale or further processing.

Express Mention

Specifically and clearly stated or detailed, often used to describe something that is explicitly referred to in a document or conversation.

UCC

Refers to the Uniform Commercial Code, a thorough collection of legislations that regulate all commercial dealings across the United States.