5. Beatles Pest Removal Inc. has the following capital structure: 65% common stock 5% preferred stock 30% long-term debt The risk premium of Beatles Pest Removals stock vs. 90-day T-Bills is 12%. The risk-free rate equals 5%. The yield to maturity of 20-year US Govt. bonds is 6.0%. Beatles credit rating is BBB+ and the credit spread for BBB+ debt is 1.5%. Beatles Pest Removals effective tax rate is 35%. The company recently issued preferred stock that pays a 10% dividend. Issuance costs were 5% of par. (30 pts)

a. What is Beatles Pest Removals cost of equity? (5 pts)

b. What is Beatles pre-tax and after-tax cost of debt? (5 pts)

c. Find Beatles cost of preferred stock net of issuance costs? (5 pts)

d. Calculate Beatles Pest Removal Incs WACC.(5 pts)

e. Beatles Pest Removal is considering a project that has an IRR = 15%. If Beatle Inc. finances the investment with equity, should it proceed with the project? Why or why not? (5 pts)

f. If Beatles Pest Removal finances the project (IRR = 15%) using all three sources of financing (e.g. debt, equity & preferred stock) in the proportions stated above, should it proceed with the project? Why or why not? (5 pts)