2. [10 points] Burton currently has $850,000 of long-term debt outstanding, 5,000 shares of preferred stock ($10 par) with a market price of $13, and 20,000 shares of common stock ($20 par) with a market price of $54 per share. They have used a WACC of 14% in the past to evaluate projects but want to determine their current required return for new investments. Debt: Burton can sell a 10-year, $1,000 par value, 8 percent annual coupon (interest paid semi-annually) bond for $980. A flotation cost of 2 percent of the face (par) value would be required. Additionally, the firm has a marginal tax rate of 21%. Preferred Stock: Burton pays $1.25 dividends annually on their preferred shares. The shares are currently selling for $13 in the secondary market. They do not have plans to issue any additional preferred stock. Common Stock: Burton's common stock is currently selling for $54 per share. The dividend expected to be paid at the end of the coming year is $4. Its dividend payments have been growing at a constant 4% rate.

a. Calculate the after-tax cost of debt Face Value of bond- $1,000 Coupon Rate- 8% semi annually Maturity- 10 years Marginal Tax Rate- 21% Flotation- 2% on bond price PV of the principle- 1000*.45639= 456.39 PV of annuity 40*13.59033= 543.61 Total bond price 456.39+543.61= 1000 Cost of debt (1000-20)-543.61=436.39 436.39(1-21%)=436.39*.79 =344.74 b.

b Calculate the cost of preferred equity (1.25/13)*100 =9.61%

c. Calculate the cost of common equity =(4/54)+4 = 4.07%

d. Calculate the WACC =((54/490)*4.07)+((436.39/430.39(*4.07(1-.21) =(.1102*4.07)+(.8899*4.07*.79) = 3.3097

e. Re-calculate the NPV for their project in #1 above using this new WACC.

f. Should Burton accept the project when considering this revised cost of capital? Why or why not?

please help with parts e and f