You are considering a project which requires $136,000 in external financing. The flotation cost of equity is 11 % and the cost of debt is 4.5 %. You wish to maintain a debt-equity ratio of.45. What is the initial cost of the project including the flotation costs?

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To maintain a debt-equity ratio of 0.45, the equity portion is $93,793.10 and the debt portion is $42,206.90. The flotation cost for equity is $10,317.24. Adding these costs to the initial financing requirement gives a total project cost of $149,422.

You Are Considering a Project Which Requires $136,000 in External