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Question
Use the following information to answer the following question(s).Your firm is trying to determine whether it should finance a project requiring $800,000 with new common stock or with debt. The firm is faced with the following financing alternatives:
I: Issue new common stock. Sale price of the common stock is expected to be $40 per share.
II: Issue new bonds with a coupon rate of 12%.
The firm has a marginal tax rate of 34%, the company currently has 40,000 shares of common stock outstanding, and $90,000 face value of 10% debt outstanding.
The total interest obligation will be:
A) $105,000 under alternative I and $9,000 under alternative II.
B) $9,000 under alternative I and $105,000 under alternative II.
C) zero under alternative I and $96,000 under alternative II.
D) $105,000 under both alternative I and alternative II.
Answer
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Related questions
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