Takeda Enterprises Has Four Investment Opportunities with the Following Costs

question 51

Multiple Choice

Takeda Enterprises has four investment opportunities with the following costs (all costs are paid at t = 0) and estimated internal rates of return (IRR) : The company wants to maintain a capital structure of 50 percent debt and 50 percent equity.The company anticipates that it can issue up to $2,000 of debt at an interest rate of 10 percent; if it issues more than $2,000 of debt its interest rate will increase to 11 percent.The company's stock price (P₀) is currently $90 per share, its expected dividend ( ) is $6, and its dividend growth rate is 5 percent.The company expects to have $3,000 in retained earnings and its tax rate is 30 percent.What percentage flotation cost makes the net present value of accepting Project D zero? (Hint: Project D will be selected only after Projects A, B, and C have been selected.)

• A) 18.77%
• B) 22.12%
• C) 24.10%
• D) 27.33%
• E) 30.25%

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