P14-19 Calculating Flotation Costs [L04]

Cully Company needs to raise $21 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 60 percent common stock, 10 percent preferred stock, and 30 percent debt. Flotation costs for issuing new common stock are 12 percent, for new preferred stock, 6 percent, and for new debt, 4 percent. What is the true initial cost figure Southern should use when evaluating its project?

Multiple Choice

• $23,076,923

• $24,000,000

• $22,153,846

• $22,890,000

• $19,460,000