Problem:
Trower Corp. has a debt?equity ratio of 0.85. The company is considering a new plant that will cost $120 million to build. When the company issues new equity, it incurs a flotation cost of 9.0 percent. The flotation cost on new debt is 4.5 percent.
Question 1: What is the initial cost of the plant if the company raises all equity externally?
Question 2: What is the initial cost of the plant if the company typically uses 65 percent retained earnings?
Question 3: What is the initial cost of the plant if the company typically uses 100 percent retained earnings?
Note: Please answer in proper manner and show all computations.