Asked by
Ahmet GUZELCE
on Dec 09, 2024
Verified
The Lingo Co. has a debt-equity ratio of.60. The firm is analyzing a new project which requires an initial cash outlay of $450,000 for new equipment. The flotation cost for new equity is 10 % and for debt 5 %. What is the initial cost of the project including the flotation costs?
A) $413,438
B) $483,750
C) $486,486
D) $486,563
E) $489,796
Debt-Equity Ratio
A ratio detailing the comparative use of borrowed funds and equity by a company to finance its assets.
Flotation Cost
The total costs associated with issuing new securities, including fees for underwriting, legal advice, and registration.
Initial Cash Outlay
The initial funds and costs required to initiate a project, investment, or venture.
- Gain insight into the effect of flotation costs on financing projects and the method for computing initial costs of a project, including those of flotation.
- Understand the basic principles of capital structure and the impact of debt-to-equity ratios on financing options.
Verified Answer
NN
Learning Objectives
- Gain insight into the effect of flotation costs on financing projects and the method for computing initial costs of a project, including those of flotation.
- Understand the basic principles of capital structure and the impact of debt-to-equity ratios on financing options.