The daily brew has a debt-equity ratio of .57. the firm is analyzing a new project that requires an initial cash outlay of $260,000 for equipment. the flotation cost is 5.1 percent for equity and 3.4 percent for debt. what is the initial cost of the project including the flotation costs?

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 =  

weight of debt =  

weight of debt = 36.30 %

and

weight of equity =    

weight of equity =  

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 =        

initial cost of project including floating cost =      

initial cost of project including floating cost = $272479.56

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