Based in Winnipeg, Manitoba, Clearview Systems Ltd. (CVL) was founded to provide security systems, facilities controls and related services. CVL established a solid reputation for quality and the business grew thanks to strong relationships with large, long-term customers in Canada and the United States. The Research and Innovation Group (RIG) is the development side of the company. They are considering a new contract that will strain resources for not only RIG, but the entire company. With an upfront cost of $7.0 million, managers understand that the cost of capital will be a key part of maintaining and improving Clearview's competitive edge. You have been asked to calculate the company's weighted average cost of capital (WACC), based on the following information. Over the last five years the annual dividends on the firm's common stock have grown at 3.00 percent per year and this growth is expected to continue indefinitely. A common share dividend of $1.810 per share was recently paid. Common shares trade at $72.000 per share. The company has authorized 255,000 common shares, with 224,000 common shares issued and outstanding. The company has issued 121,000 of the 138,000 preferred shares authorized. The annual preferred share dividend is $1.240 per share. The latest preferred share price is $45.100 per share. CVL has an outstanding bond issue, payable semi-annually, that originally had a 30 year maturity. The initial bond offering was sold 8 years ago, at par and raised $21.20 million dollars. (To be specific 21,200 bonds were sold at $1,000 each.) The yield to maturity, when they were issued, was 5.20 percent. Currently, the nominal yield to maturity on bonds with a similar risk is at 4.94 percent. The company will use its current capital structure to set target weights for debt, preferred shares and common shares. Flotation costs are 4.00 percent for preferred shares, 3.00 percent for common shares and 4.00 percent for debt. The company's tax rate is 45.00 percent. After-tax earnings for the year will be $2.00 million and the company has a payout ratio of 30.00 percent. Bond prices should be to two decimal places (e.g. \$12.34) 'Per share' figures should be rounded to three decimal places (e.g. $1.234 per share) Total dollar figures should be rounded to zero decimal places (e.g. \$1,234) The following table is presented to help you organize the information from the case: (there are no marks associated with the information in this table) (Round all your answers to two decimal places. If you want to enter the number 12.34%, 1. Bonds a. What is the nominal yield-to-maturity? b. What is the effective yield-to-maturity? c. Calculate the after-tax cost of new debt (using the effective yield-to-maturity). 2. Preferred shares: 3. Common equity in the form of retained earnings: 4. Common equity in the form of new shares: percent D. What is the Weighted Average Cost of Capital if: (Round all your answers to two decimal places. If you want to enter the number 12.34%, 1. the company uses new debt, new preferred shares and just retained earninas? percent jercent jercent jercent jercent 2. the company uses new debt, new preferred shares and new common sparace? E. How much of the new capital projects can be funded without using new shareholders? (Enter your answer in whole numbers. For example, $1,234,000 not $1.234 million.) Based in Winnipeg, Manitoba, Clearview Systems Ltd. (CVL) was founded to provide security systems, facilities controls and related services. CVL established a solid reputation for quality and the business grew thanks to strong relationships with large, long-term customers in Canada and the United States. The Research and Innovation Group (RIG) is the development side of the company. They are considering a new contract that will strain resources for not only RIG, but the entire company. With an upfront cost of $7.0 million, managers understand that the cost of capital will be a key part of maintaining and improving Clearview's competitive edge. You have been asked to calculate the company's weighted average cost of capital (WACC), based on the following information. Over the last five years the annual dividends on the firm's common stock have grown at 3.00 percent per year and this growth is expected to continue indefinitely. A common share dividend of $1.810 per share was recently paid. Common shares trade at $72.000 per share. The company has authorized 255,000 common shares, with 224,000 common shares issued and outstanding. The company has issued 121,000 of the 138,000 preferred shares authorized. The annual preferred share dividend is $1.240 per share. The latest preferred share price is $45.100 per share. CVL has an outstanding bond issue, payable semi-annually, that originally had a 30 year maturity. The initial bond offering was sold 8 years ago, at par and raised $21.20 million dollars. (To be specific 21,200 bonds were sold at $1,000 each.) The yield to maturity, when they were issued, was 5.20 percent. Currently, the nominal yield to maturity on bonds with a similar risk is at 4.94 percent. The company will use its current capital structure to set target weights for debt, preferred shares and common shares. Flotation costs are 4.00 percent for preferred shares, 3.00 percent for common shares and 4.00 percent for debt. The company's tax rate is 45.00 percent. After-tax earnings for the year will be $2.00 million and the company has a payout ratio of 30.00 percent. Bond prices should be to two decimal places (e.g. \$12.34) 'Per share' figures should be rounded to three decimal places (e.g. $1.234 per share) Total dollar figures should be rounded to zero decimal places (e.g. \$1,234) The following table is presented to help you organize the information from the case: (there are no marks associated with the information in this table) (Round all your answers to two decimal places. If you want to enter the number 12.34%, 1. Bonds a. What is the nominal yield-to-maturity? b. What is the effective yield-to-maturity? c. Calculate the after-tax cost of new debt (using the effective yield-to-maturity). 2. Preferred shares: 3. Common equity in the form of retained earnings: 4. Common equity in the form of new shares: percent D. What is the Weighted Average Cost of Capital if: (Round all your answers to two decimal places. If you want to enter the number 12.34%, 1. the company uses new debt, new preferred shares and just retained earninas? percent jercent jercent jercent jercent 2. the company uses new debt, new preferred shares and new common sparace? E. How much of the new capital projects can be funded without using new shareholders? (Enter your answer in whole numbers. For example, $1,234,000 not $1.234 million.)