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Calculate the weighted average flotation costs

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Reference no: EM133141425

Question - A company has the following flotation costs: issuing new debt of 4%, new preferred shares 5% and new common shares is 6%. The firm has no internally generated funds available. The weight of debt is 31%, the weight of preferred shares is 7% and the weight of common equity is 62%. The firms tax rate is 40%. The WACC for the firm is 12%.

The company is planning to do an expansion project for $5,000,000 plus $200,000 of installation costs. This project has the same level of risk as the firm. The project is expected to produce annual cash flows of $400,000 for the next twenty years.

Required -

a) Calculate the weighted average flotation costs.

b) Calculate the total initial investment for the expansion.

c) Calculate the NPV of the project.

d) Should the firm proceed with the expansion project? Explain you answer.

Reference no: EM133141425

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