Question

Southern Alliance Company needs to raise $25 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, 9 percent preferred stock, and 36 percent debt. Flotation costs for issuing new common stock are 14 percent, for new preferred stock, 6 percent, and for new debt, 5 percent. What is the true initial cost figure Southern should use when evaluating its project? (Do not round your intermediate calculations.)

rev: 09_20_2012

Multiple Choice

• $27,510,000

• $22,916,667

• $28,901,734

• $26,678,524

• $27,790,129

Answer 1

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