True initial cost figure


Problem:

Caughlin Company needs to raise $50 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 50 percent common stock, 10 percent preferred stock, and 40 percent debt. Flotation costs for issuing new common stock are 6 percent, for new preferred stock, 3 percent, and for new debt, 1 percent.

Required:

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

Note: Provide support for rationale.

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Accounting Basics: True initial cost figure
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