Question: Southern Alliance Company needs to raise 45 million to start
Southern Alliance Company needs to raise $45 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 65 percent common stock, 5 percent preferred stock, and 30 percent debt. Flotation costs for issuing new common stock are 9 percent; for new preferred stock, 6 percent; and for new debt, 3 percent. What is the true initial cost figure Southern Alliance should use when evaluating its project?
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