C. Flotation Costs Assume that Errod Production Limited is pursuing $30 million for a new project. The required funds will have to be raised externally. The firm's flotation costs for selling debt and equity are 2 percent and 16 percent, respectively. i. If flotation costs are considered, what is the true cost of the new project? (4 marks) ii. If Errod Production Limited stock currently sells for $50 per share, and the dividend per share will probably be about $5. A shareholder contends that, "It will cost the firm $5 per share to use the stockholders' money this year, so the cost of equity is equal to 10 percent M ($5/50)." What is wrong with this assumption? As an Investment Analyst at Rollways Securities, you are preparing for a next meeting of the investment committee. The committee requested that you assess the capital structure of Errod Production Limited, a manufacturer of commercial and industrial products. The following information is available about the company to assist you in completing your assessment. A. Cost of Equity - Suppose stock in Errod Production Limited has a beta of.80. The return on the market 12% percent, and the risk-free rate is 6 percent the firm's last dividend was $1.20 per share, and the dividend is expected to grow at 8 percent indefinitely. The stock currently sells for $45 per share. B. Determine the firm's cost of equity capital using the: i. SML approach Dividend growth model ii. Total: 8 marks B. Calculating the WACC In addition to the information given above, suppose Errod Production Limited has a target debt-equity ratio of 50 percent. Its cost of debt is 9 percent, before taxes. If the tax rate is 35 percent. Determine the company weighted average cost of capital (WACC)