Now suppose that KMS plans an expansion project next year. If the company retains the...
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Now suppose that KMS plans an expansion project next year. If the company retains the cash it would not need to raise new funds from outside investors for the project. Raising new funds costs F, issuance fees. The fees expense is tax deductible. If the amount of issuance fees (nominal fees) the company must pay is 3.6 million, what would be optimal for KMS to do retain cash or pay it out and raise cash in one year when it needs cash for the project?
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