Chapter 13, Problem 15QP

Calculating Flotation Costs Southern Alliance Company needs to raise $55 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 65 percent common stock, 5 percent preferred stock, and 30 percent debt. Flotation costs for issuing new common stock are 7 percent; for new preferred stock, 4 percent; and for new debt, 3 percent. What is the true initial cost figure Southern should use when evaluating its project?