Suppose stock in Samsung Corporation has a beta of 0

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Suppose stock in Samsung Corporation has a beta of 0.80. The market risk premium is 6%, and the risk-free rate is 6%. Samsung’s last dividend was €1.20 per share, and the dividend is expected to grow at 8% indefinitely. The stock currently sells for €45 per share. Samsung has a target debt-equity ratio of 0.50. Its cost of debt is 9%. Please ignore taxes for the purpose of this exercise.

1. Samsung is seeking €30 million for a new project. The necessary funds will have to be raised externally. Samsung’s flotation costs for selling debt and equity are 2% and 16%, respectively. If flotation costs are considered, what is the true cost of the new project? (10 points)