SebCoe plc, a British firm, is evaluating an investment in a £50 million project that will be financed with 50% debt and 50% equity. Management has already determined that the NPV of this project is £5 million if it uses internally generated equity. However, if the company uses external equity, it will incur flotation costs of 5.8%. Assuming flotation costs are not tax deductible, the NPV using external equity would be:

A. less than £5 million because we would discount the cash flows using a higher weighted average cost of capital that reflects the flotation costs.

B. £3.55 million because flotation costs reduce NPV by $1.45 million.

C. £5 million because flotation costs have no impact on NPV.