Suppose Your Company Needs $14 Million to Build a New

question 33

Multiple Choice

Suppose your company needs $14 million to build a new assembly line.Your target debt-equity ratio is 0.84.The flotation cost for new equity is 9.5 percent,but the floatation cost for debt is only 2.5 percent.What is the true cost of building the new assembly line after taking flotation costs into account?

• A)14.82 million
• B)14.94 million
• C)15.07 million
• D)15.12 million
• E)15.23 million

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Definitions:

National Income

The total amount of money earned within a country, consisting of wages, rents, interest, and profits from domestic and foreign sources.

Present Value

The current worth of a future sum of money or stream of cash flows, given a specified rate of return, crucial in assessing investment opportunities.

Interest

Interest represents the cost of borrowing money, typically expressed as a percentage of the principal, paid by the borrower to the lender for the use of the lender's money.

Economic Profits

Economic profits are the total revenues of a firm minus the opportunity costs of all inputs, reflecting the additional gain over the normal profit.