$1.$ Whelton Corporation's target capital structure consists of $45\%$ debt and $55\%$ common equity. Assume that the firm has no retained earnings to fund it$$s capital budget in the coming year. Whelton just paid an annual dividend of $$1\mathrm{.}25,$ which is expected to grow at a constant rate of $4\%$; and their current stock price is $$20\mathrm{.}75.$ Whelton can raise all the debt financing it needs at $9\mathrm{.}75\%.$ If Whelton issues new common stock, a $15\%$ flotation cost will be incurred. The firm's tax rate is $25\%.$

What is the component cost of the equity raised by selling new common stock?

What is Whelton$$s cost of cap

$2.$ Assume that you have been hired as a consultant by Beard Corporation to estimate their weighted average cost of capital. Beard$$s stock is currently selling for $$15\mathrm{.}25$ per share, and its noncallable $$1,000$ par value, $15-$year, $7\mathrm{.}50\%$ bonds with semiannual payments are selling for $$875\mathrm{.}00.$ Their beta is $1\mathrm{.}3,$ the yield on a $10-$year Treasury bond is $5\mathrm{.}25\%.$ The market risk premium is $5\mathrm{.}6\%$ and their tax rate is $25\%.$ Finally, Beard$$s optimal capital structure is $30\%$ debt and $70\%$ equity.

What is Beard$$s WACC?

How could Beard lower their WACC? Provide $2$ things the company could do$.$ital assuming they will have to issue new common stock?

$3.$ Crimm Publishing$$s managers are determining the company's optimal capital budget for the next year.

Crimm is considering the following projects:

Project

Size

Rate of Return

Risk

A

$$250,000$

$13\%$

High

B

$500,000$

$15$

High

C

$400,000$

$12\mathrm{.}5$

Average

D

$100,000$

$11$

Average

E

$150,000$

$10\mathrm{.}5$

Low

F

$150,000$

$10$

Low

G

$200,000$

$9$

Low

Crimm estimates its WACC is $12\%$ and all projects are independent. The company adjusts for risk by adding $2\%$ to the WACC for high$-$risk projects and subtracting $2\%$ from the WACC for low$-$risk projects.

Which of the projects will the company accept? And what will be the size of Crimm$$s capital budget based on these projects they will accept?