B5 King Building Construction Company is considering a four-year renovation project to improve its facilities and equipment. You are the Chief Financial Officer of the company and are responsible for estimating the discount rate, which is the cost of capital, used for capital budgeting appraisal. The capital structure of your company with relevant market information are shown as below: Common stock: There are 60 million shares outstanding of $5 par selling for $42 per share. The stock has a beta coefficient of 1.8. The management of the company just paid annual dividend of $1.5 per share and the market expects all future dividends will grow by 5 percent per year thereafter in the foreseeable future. Preferred stock: 9.6 million shares selling at $96 per share, with dividend rate of 6 percent and face value of $100. Debt: Three years ago, the company issued 9 million 15-years zero coupon bonds with par value of $1,000 that are still outstanding now. It is currently selling for $720. Market: The current Treasury bill yields 3 percent and the expected return on the market is 12 percent. The company is in the 40% corporate tax bracket. The detailed information of the initial cash outflow and cash inflows of the two four-year renovation projects are listed as follows: Required: Year Project A (S) Project B ($) 0 -1,180,500 -638,000 1 279,500 238,000 2 336,000 358,000 3 570,800 401,000 823,400 598,000 (a) Assess the cost of equity (RE) by employing both Dividend Growth Model and CAPM, cost of preferred stock (Rp), and pre-tax cost of debt (Rp). [answers in % taking up to 3 decimal places] (7 marks) (b) Determine the company's capital structure weights (WE, W, W) for equities and debt. [answers in %] (3 marks) (c) Assuming that the company is going to maintain the current capital structure, estimate the weighted average cost of capital (WACC) of the company. [answer in %] (2 marks) (d) Compute the NPV for both Project A and Project B, and thus, identify which project the company should choose. (3 marks) (e) Among all capital budgeting appraisal techniques you have learnt, identify which one is the most preferable with TWO justifications