help in homework

New User?

Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Axon Industries needs to raise $23

Axon Industries needs to raise $23

Finance

Axon Industries needs to raise $23.46M for a new investment project. If the firm issues one-year debt, it may haveto pay an interest rate of 9.13 %, although Axon's managers believe that 5.52 % would be a fair rate given the level of risk. If the firm issues equity, they believe the equity may be underpriced by 9.32 %. What is the cost to current shareholders of financing the project out of debt? 

NOTE: Provide your answers in Millions. E.G. for 100M you must enter 100.0000, for 20M you must enter 20.0000, etc.

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

Computation of Cost to Current Shareholders of Financing the Project out of Debt:
Total Cost = Principal*(1+Interest Rate)

= $23.46M*(1+9.13%)

Total Cost = $25.60M

 

Present Value of Total Cost = Total Cost/(1-Fair Rate)

= $25.60M/(1+5.52%)

Present Value of Total Cost = $24.26M

 

 

Sitejabber (5.0)

BBC (5.0)

Trustpilot (4.9)

Google (5.0)