To Finance Its Ongoing Construction Project, Bowen-Roth Inc

Multiple Choice

To finance its ongoing construction project, Bowen-Roth Inc.will need $5,000,000 of new capital during each of the next 3 years.The firm has a choice of issuing new debt or equity each year as the funds are needed, or issue only debt now and equity later.Its target capital structure is 40% debt and 60% equity, and it wants to be at that structure in 3 years, when the project has been completed.Debt flotation costs for a single debt issue would be 1.6% of the gross debt proceeds.Yearly flotation costs for 3 separate issues of debt would be 3.0% of the gross amount.Ignoring time value effects, how much would the firm save by raising all of the debt now, in a single issue, rather than in 3 separate issues?

A) $79,425
B) $83,606
C) $88,006
D) $92,406
E) $97,027