Suppose your company needs $15 million to build a new assembly line. Your target debt?equity ratio is .60. The flotation cost for new equity is 8 percent, but the flotation cost for debt is only 5 percent. Your boss has decided to fund the project by borrowing money because the flotation costs are lower and the needed funds are relatively small.a. What is your companyâ€™s weighted average flotation cost, assuming all equity is raised externally?b. What is the true cost of building the new assembly line after taking flotation costs into account?7. Caughlin Company needs to raise $55 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 70 percent common stock, 5 percent preferred stock, and 25 percent debt. Flotation costs for issuing new common stock are 9 percent, for new preferred stock, 6 percent, and for new debt, 3 percent. What is the true initial cost figure the company should use when evaluating its project?8. Scanlin, Inc., is considering a project that will result in initial aftertax cash savings of $1.8 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. The firm has a target debtâ€“equity ratio of .80, a cost of equity of 12 percent, and an aftertax cost of debt of 4.8 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of 2 percent to the cost of capital for such risky projects. What is the maximum intital cost the company would be willing to pay for the project?

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