In: Finance
A firm has a capital structure that is 75% equity and 25% debt. They would like to buy some machinery that would cost $1,500,000. The firm has a flotation cost of equity of 6.5% and a flotation cost of debt of 5.75%. If they buy the equipment, how much will the firm have to pay in flotation costs? Assume that the firm maintains their current capital structure. Please do in Excel.
Investment amount
1500000
Amount raised = Net capital /(1-flotation cost %)
Flotation cost = Amount raised * flotation cost %
Amount net of Flotation
cost Flotation cost % Amount
raised Flotation cost
Equity 75% 1125000
6.50% 1203208.556 78208.55615
Debt 25% 375000
7.50% 405405.4054 30405.40541
Total
108613.9616
Total Flotation cost is $108613.96
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