1. Southern Alliance Company needs to raise $27 million to start a new project. The company has a target capital structure of 60 percent common stock, 11 percent preferred stock, and 29 percent debt. Flotation costs for issuing new common stock are 11 percent, for new preferred stock, 8 percent, and for new debt, 4 percent. What is the true initial cost figure Southern should use when evaluating its project?
a) $30,735,552
b) $28,371,278
c) $29,332,800
d) $29,553,415
e) $24,930,000
2. The WACC assumes that the components weights are based on:
a. Historical data
b. Target %
c. Book value
d. Market value