3) Jen and Barry\'s Ice Cream needs $20 million in new capital to expand its pro

Question

3) Jen and Barry's Ice Cream needs $20 million in new capital to expand its production facilities. It will use 40% debt and 60% equity. The company's after-tax cost of debt is 5% and the cost of equity is 12.5%. Flotation costs will be 3% for debt and 9% for equity. What is the total amount of capital that will need to be raised to finance the expansion project?
A) $22,386,000
B) $20,000,000
C) $21,200.000
D) $21,413,276
wEIGHTED AVERAGE FLOTATION COST= 6.6%

PLEASE SHOW THE WORK HOW YOU GET THE ANSWER

Explanation / Answer

Let the amount raised be x
debt= .4x
equity =.6x
.4x*97% + .6x*91% =$20 million
0.918x = $20 million
x= $21,413,276.23

Answer D) $21,413,276

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