Reference no: EM13833732

1. Cost of preferred stock: The preferred stock of Gator Industries sells for $35.69 and pays $2.71 per year in dividends. What is the cost of preferred stock financing? If Gator were issue 550,000 more preferred shares just like the ones it currently has outstanding, it could sell them for $35.69 a share but would incur flotation costs of $2.88 per share. What are the flotation costs for issuing the preferred shares and how should this cost be incorporated into the NPV of the project being financed?

2. Flotation costs and NPV analysis: The Faraway Moving Company is involved in a major plant expansion that involves the expenditure of $220 million in the coming year. The firm plans on financing the expansion through the retention of $138 million in firm earnings and by borrowing the remaining $82 million. In return for helping sell the $82 million in new debt, the firm's investment banker charges a fee of 150 basis points (where one basis point is 0.01 percent). If Faraway decides to adjust for these flotation costs by adding them to the initial outlay, what will the initial outlay for the project be?