The Pecking Order of Financing Alternatives Axon Industries needs to raise $10 million for a new investment project. If the firm issues one year debt, it may have to pay an interest rate of 7%,...

The Pecking Order of Financing Alternatives

Axon Industries needs to raise $10 million for a new investment project. If the firm issues one year debt, it may have to pay an interest rate of 7%, although Axon’s managers believe that 6% would be a fair rate given the level of risk. However, if the firm issues equity, they believe the equity may be underpriced by 5%. What is the cost to current shareholders of financing the project out of retained earnings, debt, and equity?