Southern Alliance Company needs to raise $27 million to start a new project. The company has...

Southern Alliance Company needs to raise $27 million to start a new project. The company has a target capital structure of 60 percent common stock, 11 percent preferred stock, and 29 percent debt. Flotation costs for issuing new common stock are 11 percent, for new preferred stock, 8 percent, and for new debt, 4 percent. What is the true initial cost figure Southern should use when evaluating its project?

Expert Solution

Total Capital	Capital Structure	Proportion	Amount	Floation Cost	Total Capital Raised	Added cost
2,70,00,000.00	common stock	60%	1,62,00,000.00	11%	1,82,02,247.19	20,02,247.19
	preferred stock	11%	29,70,000.00	8%	32,28,260.87	2,58,260.87
	debt	29%	78,30,000.00	4%	81,56,250.00	3,26,250.00
	Total	100%		Total Initial Cost		25,86,758.06

jeff jeffy answered 2 years ago

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