Southern Alliance Company needs to raise $27 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, 9 percent preferred stock, and 31 percent debt. Flotation costs for issuing new common stock are 11 percent, for new preferred stock, 6 percent, and for new debt, 4 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 $27 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, 9 percent preferred stock, and 31 percent debt. Flotation costs for issuing new common stock are 11 percent, for new preferred stock, 6 percent, and for new debt, 4 percent. What is the true initial cost figure Southern should use when evaluating its project? (Do not round your intermediate calculations.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Southern Alliance Company needs to raise $27 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, 9 percent preferred stock, and 31 percent debt. Flotation costs for
issuing new common stock are 11 percent, for new preferred stock, 6 percent, and for
new debt, 4 percent. What is the true initial cost figure Southern should use when
evaluating its project? (Do not round your intermediate calculations.)
Multiple Choice
$25,110,000
$28,290,766
$29,262,600
$29,469,548
$30,648,330
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