Can someone please help me in answering this question...A firm must externally raise $25 million for a new project. The flotation costs for selling debt and equity are 4 percent and 12 percent, respectively. The firm has a target debt-to-equity ratio of 50 percent. If the firm considers flotation costs, how much capital must the firm raise for the new project?
I am not too sure how to proceed. This is what I have so far---->
4% of $25M = $1M flotation cost for debt.
12% of $25M = $3M flotation cost of equity
Total flotation cost = $4M
So firm has to raise 4 + 25 = $29M.
My answer is wrong according to the textbook. Can someone help me out? Thanks