Saint Leo Manufacturing is going to introduce a new product line and to accomplish this it has four projects analyzed in which it wants to invest a total of $100 million. Your job is to find what it will cost to raise this amount of capital and based on the cost of capital as outlined below:

The firm's capital structure consists of:

Other information about the firm:
Corporate tax rate .......... 35%
Debit
Current price .............. 900
Annual interest ............ 9.00%
Original maturity ............ 25
Maturity value ........... 1,000
Flotation cost Insignificant

Market yield projected:
Up to $20 million ........... 9%
Above $20 million ........... 12%
Preferred
Current price ............. 50
Last dividend (d0) ............ 5
Flotation cost .............. 2
Next dividend (d1) ............ 5
Common
Current price .............. 33
Last dividend (d0) ............. 2
Retained earnings ........ 16,000,000
Growth rate (g) ............. 9%
Flotation cost .............. 3
Next dividend (d1) ............... 2

REQUIRED:
In all of the required parts one part builds on the previous part. If you can't do a part use the set of other numbers to solve the next part.
a. What is the current Kd, Kp and Ke assuming no new debt or stock?
b. Since any new capital investment will require issuing new perferred stock, what would the new returns be preferred stock (knp) and the new cost of capital?
c. What amount of increase (marginal cost of capital) in capital structure will the firm run out of retained earnings and be forced to issue new common stock?
d. If new common stock has to be issued what will the new return required be (Kne) and the new cost ofcapital?

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PROJECTS INVESTMENT EXPECTED RETURN $30,000,000 $20,000,000 $25,000,000 $25,000,000 16.00% 10.00% 14.00% 11.50% FVV AMOUNT $15,000,000 CAPITAL PERCENTAGE DEBT PREFERRED STOCK COMMON STOCK 30% 1090 60% $5,000,000 $30,000,000