1. The following after-tax information pertains to Allen Corporation:

Cost of debt for bonds issued, up to $120,000	8.5%
Cost of debt for bonds issued over $120,000	10.0%
Cost of retained earnings	12.0%
Cost of new common shares	13.0%
Retained earnings available in the form of cash	$78,000
% of debt in capital structure	40%
% of common equity in capital structure	60%

Given this capital structure:

a. Calculate the amount of the largest project that could be funded using the available retained earnings. (1 mark)

b. Calculate the amount of the largest project that could be funded using 8.5% debt. (1 mark)

c. Calculate the percentage marginal cost of capital for amounts up to the amount calculated in Part a above. (2 marks)

d. Calculate the percentage marginal cost of capital for amounts between the amounts calculated in Part a and Part b. (2 marks)

e. Calculate the percentage marginal cost of capital for amounts above the amount calculated in Part b. (2 marks)

f. Calculate the overall percentage cost of capital for a project costing $500,000. (3 marks)