A summary of the balance sheet and income statement of TCL Corporation, digital gadgets manufacturer. Sharp Corporation, Pioneer Corporation and Casio are its major competitors. Items from the income statements and balance sheets for Sharp Corporation, Pioneer Corporation and Casio are reported as well. TCL Corporation: December 31, 2019 (Millions of Dollars) Cash 490 Accounts Payable $1,900 Accounts Receivable 996 Accruals 200 Inventories 875 Short-term debt 50 Current Assets $2,361 Current Liabilities $2,150 Net Fixed Assets 5485 Long-term Debt 1363 Common Stock $365 Retained Earnings 3968 Total Assets $7,846 Total Liabilities and equity $7,846 December 31, 2019 (In Millions) TCL Corporation Sharp Corporation Pioneer Corporation Casio Revenue 1,753 5,964 535 120,360 Total Assets 12,120 1,002 2,045,145 Earnings Before Interest, Taxes, Depreciation and Amortization 9 334 21 3,066 Net Income 5.4 117.8 8.7 476 Current Assets 9,672 1,045 244,224 Current Liabilities 8,399 1,038 232,008 Interest Bearing Debt 1,363 8,530 1,022 301,333 Current Stock Price $2.23 $8.96 $23.67 $354 Common Stock Shares Outstanding 224 679 355 248.9 Preferred Stock Price $10.54 $14.78 $59 Preferred Stock Shares Outstanding 45 112 145 126 i) The CFO would like you to use all the firms in the industry to conduct a market comparable analysis. The CFO suggests you use weights of 50% and 25%. ii) The CFO also believes that Total Assets, EBITDA and Net Income are the best indicators of market value. Please use these variables in your analysis. These facts are given for TCL: 1) The CFO is considering issuing 150,000 long-term debt bonds consisting of quarterly zero coupon bonds with an initial price of $625 and a three year term. 2) Current long-term debt consists of 100,000 semi-annual payment corporate bonds with a coupon rate of 12%. These bonds mature in 15 years. Currently, these bonds have a bond price of $910. 3) TCLs perpetual preferred stock has a current yield of 11.86% and pays a quarterly dividend of $1.75. 4) TCL is in the 21 percent federal tax bracket. 5) Beta for TCL, as reported by security analysts, is 1.2; and return on the NYSE is expected to be 14%. The return on the NYSE last year was 12%. U.S. Treasury Bill 1 4.2% U.S. Treasury Note 1 4.8% U.S. Treasury Bond 1 5.1% 6) The treasurer has also provided you with the economic forecast for the upcoming year. State of Economy Probability of State occurring (%) Return in state (%) Growth Period 29% 24% Average Period 49% 12% Recession Period 22% -6% 7) TCL is also considering an electronic manufacturing system. The treasurer has collected the following information about the proposed system. a. This project will last only 3 quarters. b. The company will have to purchase a piece of equipment to manufacture the electronic system. The equipment is manufactured in London. The equipment has an initial cost of 10,450,000. The equipment will be depreciated using a 3 year straight-line depreciation system. The equipment will have a before tax salvage value of $2,000,000. c. The current exchange rate is $0.475/ 1 (Forty-Seven and a half cents per British pound). d. The equipment will require an installation charge of 1,650,000 as well as a shipping charge of 146,300. There was a feasibility study complete to analyze the utility of this electronic system. The cost of the feasibility study was 1.2 million. The electronic system will also require a $1,400,000 (after taxes) technology upgrade. e. If the company goes ahead with the proposed product, it will have an effect on the companys net operating working capital. The net operating working capital will be ten percent (10%) of the sales they produce. f. TCL is in the 21 percent federal tax bracket. g. In the initial quarter sales are expected to be $5 million. Sales are expected to increase by 12% per quarter for the life of the project. The cost of goods sold (not including depreciation) are expected to equal 60 percent of sales revenue. h. Corporate headquarter assesses a branding fee for all projects. This fee is 5 percent of the sales produced that quarter. i. The firm will finance part of the equipment acquisition with debt. Thus, the Interest Expense is expected to be 15% of Sales. j. The treasurer assumes that the terminal growth rate is 8% per year. k. The cost of capital for the firm is based on the factors in the second page. However, the treasurer states that return for this project is 11.875% per year. The CFO assumes that all free cash flows will be reinvested at the cost of capital. l. The CFO would like you to evaluate this project by presenting the Net Present Value, Internal Rate of Return and the Modified Internal Rate of Return (NPV, IRR and MIRR). Please indicate where you would accept or reject this project based on your analysis. m. The Treasurer would like to see a quarterly pro-forma statement (Only 3 quarters). n. If you recommend that this project is to be accepted, then you are to suggest cost of capital for every financing option. If you recommend that this project be rejected, still provide the cost of capital for each security. (Please place your recommendations in the blanks below.) o. The CFO would like you to suggest only one cost of preferred stock, one cost of common stock and one cost of debt (one each) from the different methods of analysis. cost of preferred stock price for preferred stock cost of common stock price range for common stock cost of debt price range for debt