Shinedown Company needs to raise $40 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 55 percent common stock, 15 percent preferred stock, and 30 percent debt. Flotation costs for issuing new common stock are 6 percent, for new preferred stock, 3 percent, and for new debt, 1 percent. What is the true initial cost figure the company should use when evaluating its project? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.)
Shinedown Company needs to raise $40 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 55 percent common stock, 15 percent preferred stock, and 30 percent debt. Flotation costs for issuing new common stock are 6 percent, for new preferred stock, 3 percent, and for new debt, 1 percent. What is the true initial cost figure the company should use when evaluating its project? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.)
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 8P
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Transcribed Image Text:Shinedown Company needs to raise $40 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 55 percent common
stock, 15 percent preferred stock, and 30 percent debt. Flotation costs for issuing new
common stock are 6 percent, for new preferred stock, 3 percent, and for new debt, 1
percent. What is the true initial cost figure the company should use when evaluating its
project? (Do not round intermediate calculations and enter your answer in dollars, not
millions, rounded to the nearest whole number, e.g., 1,234,567.)
Answer is complete but not entirely correct.
Initial cost
418,848,168 X
$
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