Question

Problem 12-23 Flotation Costs

Trower Corp. has a debt?equity ratio of .90. The company is considering a new plant that will cost $102 million to build. When the company issues new equity, it incurs a flotation cost of 7.2 percent. The flotation cost on new debt is 2.7 percent.

What is the initial cost of the plant if the company raises all equity externally? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to the nearest whole dollar, e.g., 1,234,567.)

Initial cash outflow           $

What is the initial cost of the plant if the company typically uses 60 percent retained earnings? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to the nearest whole dollar, e.g., 1,234,567.)

Initial cash outflow           $

What is the initial cost of the plant if the company typically uses 100 percent retained earnings? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to the nearest whole dollar, e.g., 1,234,567.)

Initial cash outflow           $

Answer 1