Chapter 14, Problem 19QP

Calculating Flotation Costs [LO4] Caughlin Company needs to raise $65 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 70 percent common stock, 5 percent preferred stock, and 25 percent debt. Flotation costs for issuing new common stock are 8 percent, for new preferred stock, 5 percent, and for new debt, 2 percent. What is the true initial cost figure the company should use when evaluating its project?