"> (Answered) You are in charge of obtaining \$250,000 worth of funding for a new project your company is considering. You can issue common equity in any of the... - Tutorials Prime

## (Answered) You are in charge of obtaining \$250,000 worth of funding for a new project your company is considering. You can issue common equity in any of the...

You are in charge of obtaining \$250,000 worth of funding for a new project your company is considering. You can issue common equity in any of the...

You are in charge of obtaining \$250,000 worth of funding for a new project your company is considering. You can issue common equity in any of the following amounts:Option 1: 3000 shares at \$60 per shareOption 2: 2000 shares at \$70 per shareOption 3: 1500 shares at \$80 per shareIn any case, you will finance the rest with private debt. The cost of the private debt is a function of the amount that you borrow. You are assured in any of the scenarios of borrowing at least \$70,000, and at that level, you will have a cost of debt of 6%. For every \$10,000 additional debt beyond that, the cost increases by .5%.Â  The cost of the common stockÂ 9.1% if you borrow \$70,000Â (i.e.,Â Option 1),Â but increases by 1% for Option 2, and another 1% for Option 3. TheÂ companyâ€™s tax rate is 35%.Â A) Given this, which of the options aboveÂ provides the best scenario?WACC: Option 1-WACC: Option 2-WACC: Option 3-B) Suppose the project is expected to generate NCFs of \$75,000 during the first four years and then \$50,000 for the fifth and final year. Given this, what is that Net Present Value of the project? Â

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This question was answered on: Jan 02, 2020

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