Question:
Southern Alliance Company needs to raise $24 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 65 percent common stock, 10 percent preferred stock, and 25 percent debt. Flotation costs for issuing new common stock are 11 percent, for new preferred stock, 6 percent, and for new debt, 5 percent.
Required:
What is the true initial cost figure Southern should use when evaluating its project?
Note: Please show how to work it out.