HINT: Since the company generates no Retained Earnings, all of the project will be financed externally. Calculate the weighted average floatation cost. Use this number to figure out how much money the company must pay to issue the new securities. Remember that the total amount raised, net of the financing cost, must leave the company with exactly $22 million to start the project. This financing cost must be added to the start-up cost of the project to get the true, total cost.
The answer to this question... View the full answer