7. One of your clients has provided you with the following data relative to current costs and for various ranges of financing for its basic sources of external capital: long-term debt, preferred stock, and common stock equity. Source of Capital After-tax Cost Range of Total New Financing Long-term debt 9%+ 0 to 800,000 10%+ 12% 800,001 to 1,200,000 1,200,001 and above Preferred stock 21% 0 to 400,000 23% 400,001 and above Common stock 22% 0 to 300,000 2 26% 300,001 to 650,000 28% 650,001 to 900,000 32% 900,001 and above The firm expects to have 165,000 of current retained earnings in the coming year at a cost of 22%; once these retained earnings are exhausted, the firm will issue new common stock. The company's target capital structure proportions used in calculating the weighted average cost of capital are: Source of Capital Target Capital Structure Long-term debt 35% Preferred stock 10%+ Common stock equity 55% (a) Calculate the weighted average cost of capital for the firm prior to issuing new common stock. (4 marks) < (b) Calculate the weighted average cost of capital for the firm once the retained earnings have been used up. (Use a total new financing requirement of 500,000.) (4 marks) (c) Given the following information on available investment opportunities, determine which projects should be selected and explain your choice: (2 marks) Investment Initial Internal Rate Opportunity Investment of Return A 100,000+ 24% B 100,000+ 23% C 100,000 21% De 100,000+ 19% E 200,000 18% F 300,000 18%