Respuesta :
Answer:
initial cost of project including floating cost = $272479.56
Explanation:
given data
debt-equity ratio = 0.57
initial cash outlay = $260,000
flotation cost for equity = 5.1 percent
flotation cost for debt = 3.4 percent
to find out
initial cost of the project including the flotation costs
solution
we find here first weight of debt = [tex]\frac{debt}{equity + debt}[/tex]
weight of debt = [tex]\frac{0.57}{1+0.57}[/tex]
weight of debt = 36.30 %
and
weight of equity = [tex]\frac{equity}{equity + debt}[/tex]
weight of equity = [tex]\frac{1}{1+0.57}[/tex]
weight of equity = 63.69 %
so
weight average floating cost = weight of debt × floating cost debt + weight of equity × floating cost equity
weight average floating cost = 39.30% × 3.4 % + 63.69 × 5.1 %
weight average floating cost = 4.58 %
so
initial cost of project including floating cost = [tex]\frac{initial\ cash }{1- floating\ cost}[/tex]
initial cost of project including floating cost = [tex]\frac{260,000}{1- 0.0458}[/tex]
initial cost of project including floating cost = $272479.56
