Problem:

Southern Alliance Company needs to raise $28 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, 10 percent preferred stock, and 20 percent debt. Flotation costs for issuing new common stock are 9 percent, for new preferred stock, 6 percent, and for new debt, 5 percent.

Requirement:

What is the true initial cost figure Southern should use when evaluating its project?

• $29,185,668
• $30,212,000
• $31,617,806
• $26,133,333
• $30,401,737

Note: Solve the problem and show all work.