Question - A firm needs to purchase equipment for its 2,000 drive-ins nationwide. The total cost of the equipment is $2 million. It is estimated that the after tax cash inflows from the project will be $210,000 annually in perpetuity. The market value debt-to-assets ratio is 40%. The firm's cost of equity is 13%, its pretax cost of debt is 8%, and the flotation costs of debt and equity are 2% and 8%, respectively. The tax rate is 34%. Assume the project is of similar risk to the firm's existing operations.
What is the dollar flotation cost for the proposed financing?