Axon Industries needs to raise $24.61M for a new investment project. If the firm issues one-year...

Axon Industries needs to raise $24.61M for a new investment project. If the firm issues one-year debt, it may haveto pay an interest rate of 10.25 %, although Axon's managers believe that 4.83 % would be a fair rate given the level of risk. If the firm issues equity, they believe the equity may be underpriced by 8.71 %. What is the cost to current shareholders of financing the project out of Equity?

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Cost to the shareholders for financing the project out of Equity:

Given equity may be underpriced by 8.71%

Cost = 24.61M*(10.25%-8.71%)

= $0.378994 M

= $378,994

jeff jeffy answered 2 years ago

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