Question
The Weinstein Corporation has a target debt-to-equity ratio of 0.25. The flotation costs for equity issues are 20% of the amount raised, and the flotation
The Weinstein Corporation has a target debt-to-equity ratio of 0.25. The flotation costs for equity issues are 20% of the amount raised, and the flotation costs for debt issues are 6%. If Weinstein needs $65 million for a new project, what is the true cost after accounting for flotation costs? foverall = (0.80) 0.20 + (0.20) 0.06 = 0.172 or 17.2% Total project cost = $65 million / (1 0.172) = $78.5 million. Note: Flotation cost is included in total amount raised, i.e. flotation cost = $78.5 (0.172) = $13.5 million.
How do I calculate the target capital structure with the debt-to-equity ratio so I get 0.80 and 0.20?
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