Please help!!! If you could show work so I can understnand I would appreciate it
ID: 2720566 • Letter: P
Question
Please help!!! If you could show work so I can understnand I would appreciate it!! THANK YOU! :)
Suppose your company needs $11 million to build a new assembly line. Your target debt-equity ratio is 0.35. The flotation cost for new equity is 7 percent, but the flotation cost for debt is only 4 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small. What is your company's weighted average flotation cost, assuming all equity is raised externally? (Round your answer to 2 decimal places, (e.g., 32.16)) What is the true cost of building the new assembly line after taking flotation costs into account? (Enter your answer in dollars, not millions of dollars, i.e. 1, 234,567. Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.(e.g., 32)Explanation / Answer
All Amounts in $ a. Company's Weighted Average Flotation Cost Particulars Ratio Amount Flotation Weighted Cost Cost Equity 0.65 7150000 7% 500500 Debt 0.35 3850000 4% 154000 Total 11000000 654500 Company's Weighted Average Flotation Cost = 5.95% b. True Cost of Building the New Assembly Line Basic Cost - Flotation Cost = $ 11,000,000 - $ 654,500 = 10345500 $