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JulsSmile [24]
3 years ago
6

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?
Business
1 answer:
elena-14-01-66 [18.8K]3 years ago
6 0

Answer: See explanation

Explanation:

Debt = 0.65

Weight = 39.39%

Cost for debt = 2%

Product = 39.39% × 2%

= 0.3939 × 0.02

= 0.007878

Equity = 1.00

Weight = 60.61%

Cost for equity = 6%

Product = 60.61% × 6%

= 0.6061 × 0.06

= 0.036366

Weighted average floatation cost:

= 0.007878 + 0.036366

= 0.044244

= 4.42%

The true cost of the building will then be:

= Funds needed / (1 - Floatation cost)

= $43,000,000 / (1 - 0.044244)

= $43,000,000 / 0.955756

= $44,990,562

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creativ13 [48]

Answer:

The correct answer is True.

Explanation:

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4 0
3 years ago
A vendor allows a 2% discount if an invoice is paid within 10 days. a purchase was made for $5,000 on june 10 and paid on june 1
Kamila [148]
An invoice is a document given from the seller to the buyer stating the quantity of products bought, agreed prices and transactions made between the two parties. If the buyer bought the product in June 10 and decides to pay on the 19th, only 9 days have passed since the date of purchase. This is inclusive of the agreement written that 2% discount is given if paid not more than 10 days. Therefore, the check should be

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8 0
3 years ago
The following information is available for Fuller Manufacturing Company for the month ending October 31:_______.
denis23 [38]

Answer:

$6,625,000

Explanation:

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Add: Opening work in process inventory $455,300

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8 0
2 years ago
Ron just started working for a car wash company two weeks ago. Ron's team members come back from breaks late, and do not worry t
s344n2d4d5 [400]

Answer:

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You shouldn't try to push it onto yourself to fix, the owner/manager to fix the problem!

3 0
2 years ago
Detroit Corporation sued Chicago Corporation for intentional damage to Detroit's goodwill. Detroit had created its goodwill thro
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Answer:

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8 0
3 years ago
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