29. 30. Flotation Costs [LO3] Lucas Corp. has a debt-equity ratio of 65. The company is considering a new plant that will cost $51 million to build. When the company issues new equity, it incurs a flotation cost of 7 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? What if it typically uses 60 percent retained carnings? What if all equity investment is financed through retained carnings? Project Evaluation [LO3, 4] This is a comprehensive project evaluation problem bringing together much of what you have learned in this and previous chapters. Suppose you have been hired as a financial consultant to Defense Electronics, Inc. (DEI), a large publicly traded firm that is the market share leader in radar detection systems (RDS). The company is looking at setting up a manufacturing plant overscas to produce a new line of RDSs. This will be a five-year project. The company bought some land three years ago for $2.7 million in anticipation of using it as a toxic dump site for waste chemicals, but it Page 493 built a piping system to safely discard the chemicals instead. The land was appraised last week for $3.8 million on an aftertax basis. In five years, the aftertax value of the land will be $4.1 million, but the company expects to keep the land for a future project. The company wants to build its new manufacturing plant on this land; the plant and equipment will cost $34 million to build. The following market data on DEI's securities are current