Southern Alliance Company needs to raise $30 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 stack, 10 percent preferred stock, and 30 percent debt. Flotation costs for issuing new common stack are 10 percent, for new preferred stock, 7 percent, and for new debt, 4 percent. What is the true initial cost figure Southern should use when evaluating its project?© BrainMass Inc. brainmass.com October 10, 2019, 12:48 am ad1c9bdddf
First step is to calculate the weighted average flotation cost
Weighted average flotation ...
The solution explains how to calculate the flotation costs relating to raising capital.