Problem:
Suppose your company needs $14 million to build a new assebly line. Your targeted debt-equity ratio is 0.84. The flotation cost for new equity is 9.5%, but the flotation cost for debt is only 2.5%.
Required:
Question: What is the true cost of building the new assembly line after taking flotation costs into account?
A.14.82 million
B.14.94 million
C. 15.07 million
D. 15.12 million
E. 15.23 million
Note: Provide support for your underlying principle.