ABC, Inc. has the following capital structure which it considers to be optimal:

Debt	25%
Preferred stock	15%
Common Equity	60%
	100%

ABCs expected net income this year is $34,285.72; its established dividend payout ratio is 30%; its federal-plus-state tax rate is 40%; and investors expect future earnings and dividends to grow at a constant rate of 9% annually. ABC paid a dividend of $3.60 per share last year, and its stock currently sells for $54 per share.

ABC can obtain new financial capital in the following ways:

Preferred: new preferred stock with a dividend of $11 per share can be sold to the public at a price of $95 per share, and

Debt: new bonds can be sold to the public at an interest (coupon) rate of 12%.

A. Determine the cost of each capital component (show all work); and

b. Calculate the weighted average cost of capital (WACC) (show all work);

ABC has the following investment opportunities which are average-risk projects:

	Project Cost ($) at t = 0	Projects Expected Rate of Return (%)
A	10,000	17.4
B	20,000	16.0
C	10,000	14.2
D	20,000	13.7
E	10,000	12.0

C. If ABC does not want to issue any new common stock to finance its proposed capital projects, which of the above five capital projects should ABC accept? (Show all work.)