Suppose your company needs $43 million to build a new assembly line. Your target debt-equity ratio is .65. The flotation cost fo
r new equity is 6 percent and the flotation cost for debt is 2 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. a. What do you think about the rationale behind borrowing the entire amount?
The present value of a stock along with the continuous growth is one of the formulas that are being used in the dividend discount model, particularly as it relates to stocks that the speculation assumes will increase perpetually.
