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What are the formulae involving the calculation of flotation cost?
Wiki User
∙ 15y ago
Your company is considering a project that will cost $1 million.The project will generate after-tax cash flows of $250,000 per year for 7 years. The WACC is 15% and the firm's target D/E ratio is .6 The flotation cost for equity is 5% and the flotation cost for debt is 3%. What is the NPV for the project after adjusting for flotation costs?
fA = (E/V) x fE + (D/V) x fD
fA = (.375)(3%) + (.625)(5%) = 4.25%
PV of future cash flows = 1,040,105
NPV = 1,040,105 -1,000,000/(1-.0425) = -4,281
Wiki User
∙ 15y ago
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