Sheaves Corp. has a debt-equity ratio of 0.75. The company is considering a new plant that

will cost $48 million to build. When the company issues new equity, it incurs a flotation cost of 8

percent. The flotation cost on new debt is 3.5 percent.

a. What is the true initial cost of the plant if the company raises all equity externally?

b. What is the true initial cost of the plant if the company typically uses 60 percent retained

earnings?

c. What is the true initial cost of the plant if all equity investment is financed through retained

earnings?