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Common stock

by | Jun 29, 2021 | Assignment

Southern Alliance Company needs to raise $55 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 70 % common stock, 5 percent preferred stock, and 25 percent debt. Flotation costs for issuing new common stock are 8 percent for new preferred stock, 5 percent, and for new debt 2 percent.

What is the true initial cost figure the company should use when evaluating its project?

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