1.You are given the following capital structure for NYT corporation:

Capital Structure

Debt .20

Preferred .05

Common .75

Assume that NYT will maintain the current structure and their stock has a constant growth rate( .03). Further, assume NI= $1,500,000 , Payout ratio = 40 % , P_o = $36.00 , D_o = $2.25, P_pfd = $102.00 , D_pfd = $5.00 and the tax rate is 34%.

The flotation costs of the various capital instruments are as follows:

Common equity: F = 5% if new equity <= $500,000

8.5% if new equity > $500,000

Preferred stock: F = 6.5% if pfd <= $75,000

F = 12% if pfd > $75,000

The costs of Debt are; the firm has a 30 year maturity bond with 20 years remaining that has a 0.04 annual coupon rate and is currently selling at 101. If the firm issues more than $200,000 of new debt their rating will be affect so that new debt will have a .01(1 %) premium.

In addition,

Investment Opportunity Schedule

Project Cost IRR

A 750,000 .10

B 500,000 .09

C 600,000 .08

D 500,000 .07

a)Find NYT's breakpoints

b)determine the component costs of capital and find r_a

c)graph the MCC schedule and the IOS

d)determine which projects will be accepted

e)what assumption did you make about risk in your analysis?

DO ALL CALCULATIONS TO THE SIXTH DECIMAL POINT !!!!