What is the true cost of the project with floatation cost

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Problem: Sugarpine Diner needs to purchase equipment for its 1,500 drive-ins nationwide. The total cost of the equipment is $2.4 million. It is estimated that the after-tax cash inflows from the project will be $245,000 annually for the foreseeable future. Sugarpine has a market value debt-to-assets ratio of 30%. The firm's cost of equity is 13%, its pre-tax cost of debt is 8%, and the flotation costs of debt and equity are 2% and 8%, respectively. The tax rate is 30%. Assume the project is of similar risk to the firm's existing operations. What is the true cost of the project with floatation cost?

Reference no: EM133665285

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