Southern Alliance Company needs to raise $24 million to start a new project and will raise...

 

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Southern Alliance Company needs to raise $24 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 60 percent common stock, 10 percent preferred stock, and 30 percent debt. Flotation costs for issuing new common stock are 13 percent, for new preferred stock, 6 percent, and for new debt, 3 percent. What is the true initial cost figure Southern should use when evaluating its project? (Do not round your intermediate calculations.) Southern Alliance Company needs to raise $24 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 60 percent common stock, 10 percent preferred stock, and 30 percent debt. Flotation costs for issuing new common stock are 13 percent, for new preferred stock, 6 percent, and for new debt, 3 percent. What is the true initial cost figure Southern should use when evaluating its project? (Do not round your intermediate calculations.)

Answer rating: 100% (QA)

To determine the true initial cost figure for evaluating the project we need to calculate the weight... View the full answer