3. The question now becomes how to nance the new project. First, let us assume that the product cannot be produced at a high enough quality to be attractive to the health-care industry if it is not produced using the more automated" method. Therefore, Baker and DeSmedt have decided to go ahead with the more automated plan, which involves xed costs of $10 million per year. Before OWU can be produced, a new plant must be. built, which involves an initial outlay of $20 million. These funds can be raised by issuing either common stock or a combination of common stock and bonds. Given the current market price of DeSmedtBaker's stock, it is estimated that a new issue will net $35 per shareregardless of how much stock is issued. If debt is issued, it is not clear exactly what the interest rate associ- ated with the debt offering would -be. In talking to investment bankers, DeSmedt and Baker have discovered that the interest rate on the new debt would vary according to how much debt they decide to issue. Spe- cifically, they found the following relationship between the interest rate on new debt and the total level of new borrowing: Before-Tax Interest Rate Total Level ofNew Borrowing an Total Amount of Funds Borrowed $0.00$ 9.0 million 10.00% $901$110 million 11.00% $12.013l590 million 14.00% $15.01$13.0 million '1: 19.00% In determining how best to finance the new project, assume that a mini mum of $9 million of debt must be issued and that a maximum of $18 million in debt can be raised, and that the debt can only be raised in $3 million increments. To help in deciding how best to nance this project, determine the stock price, assuming first that no new debt is issued, then that $9 million of debt is issued, $12 million, $15 million, and finally, $18 million. In doing this, rst determine the number of shares that will be outstanding (this will be used to determine the EPS); then determine the rm's price-earnings ratio (this is determined by the long-term debt to total capitalization ratio); nally, determine the firm's EPS, which is equal to: (expected EBIT interest payments) (1 tax rate) X (number of