*Bonds: Y: (yield on bonds) Tc: (tax rate) F: (flotation costs)

*Pref: Dp: (preferred share dividend) Pp: (price of preferred shares) F: (flotation costs)

*Common: D1: (common share dividend at 1 time) P0: (price of common shares at time period 0) g: (growth rate) F: (flotation costs)

Clearview Systems Ltd. Suppose you have been hired as a financial consultant to Clearview Systems Ltd., a large, publicly traded firm that is the market share leader in radon detection systems (RDSS). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. The project will require an investment of $6.0 million dollars and the president of the company wants to be sure she understands her cost of capital before going ahead with the decision. Market information for the latest year-end (December 31/2020) is as follows: Debt The company has issued 27,300 bonds, each with a par value of $1,000 and a coupon rate of 6.30 percent (payable semi-annually). The bonds were issued 9 years ago with a 20 year maturity. They are currently selling for $915.00 each. 122,000 preferred shares have been authorized (with 100,000 issued and outstanding). The closing price of preferred shares was $24.50 per share. Preferred Stock Common Equity 282,000 common shares have been authorized (with 268,000 shares issued and outstanding). Common shares are selling for $41.00 per share. Clearview Systems Ltd. uses G. M. Wharton as its lead underwriter. Wharton charges 5.00 percent commission on new common stock issues, 3.00 percent on new preferred stock issues, and 4.00 percent on new debt issues. Wharton has included all direct and indirect flotation costs in these rates. The preferred shares were issued six years ago and pay an annual dividend of $1.31 per share. Last year, Clearview Systems Ltd. declared and paid a common share dividend of $2.46 per share. This represented a 4.00 percent growth in the common share dividend (a rate that is expected to continue into the future) and a dividend payout ratio of 30.0 percent (also expected to continue into the future). Clearview Systems Ltd.'s tax rate is 40.0 percent. Preliminary year-end results show net earnings (after interest, taxes and preferred share dividends) for the year ending December 31, 2020 is $5.0 million Pref The following table is presented to help you organize the information from the case: (Note: Some of these variables will need to be calculated. You won't find all of them in the case) (Round all your inputs to two decimal places you want to enter the number 12.34% for example,enter 1234 (not 01234) and do not enter the percent sign) Bonds Common percent Dp: 01: Te: percent Pp: PO: percent percent percent percent Requirements: E] ] A. Find market values of outstanding bonds, preferred shares and common shares: 1. Bonds: a. What is the market value of each bond? (Enter your answer to two decimal places, le... $12.34) b. What is the total market value of bonds at Dec 31, 2020 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million) 2. Preferred shares: What is the total market value of preferred shares at Dec 31, 2020 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million 3. Common shares: What is the total market value of common shares at Dec 31, 2020 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million B. What weights are assigned to debt, preferred shares and common equity on Dec 31, 2020 (Round all your answers to two decimal places. If you want to enter the number 12.34% for example, enter 12.34 (not 0.2234) and do not enter the percent sign) Debt Preferred Common percent percent percent C. Calculate the after-tax cost of the various components of WACC: (Round all your answers to two decimal places. If you want to enter the number 12.34% for example, enter 12.30 (nor 0.1234) and do not enter the percent sign) 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: percent percent percent percent ] 1 percent percent 3. Common equity in the form of retained earnings: 4. Common equity in the form of new shares: D. What is the weighted Average cost of Capital if: found all your answers to two decimal places. If you want to enter the number 12.343, for example, enter 12.34 (not 0.1234) and do not enter the percent sign.) 1. the company uses new debt, new preferred shares and just retained earnings? Weights After-tax Cost Weighted Cost Debt Pref Common E percent percent percent percent WACC 2. the company uses new debt, new preferred shares and new common shares? After-tax Cost Weighted Cost Weights Debt Pref Common E WACC percent E. How much of the new capital projects can be funded without using new shareholders? $ 12, 237,762 Clearview Systems Ltd. Suppose you have been hired as a financial consultant to Clearview Systems Ltd., a large, publicly traded firm that is the market share leader in radon detection systems (RDSS). The company is looking at setting up a manufacturing plant overseas to produce a new line of RDSs. The project will require an investment of $6.0 million dollars and the president of the company wants to be sure she understands her cost of capital before going ahead with the decision. Market information for the latest year-end (December 31/2020) is as follows: Debt The company has issued 27,300 bonds, each with a par value of $1,000 and a coupon rate of 6.30 percent (payable semi-annually). The bonds were issued 9 years ago with a 20 year maturity. They are currently selling for $915.00 each. 122,000 preferred shares have been authorized (with 100,000 issued and outstanding). The closing price of preferred shares was $24.50 per share. Preferred Stock Common Equity 282,000 common shares have been authorized (with 268,000 shares issued and outstanding). Common shares are selling for $41.00 per share. Clearview Systems Ltd. uses G. M. Wharton as its lead underwriter. Wharton charges 5.00 percent commission on new common stock issues, 3.00 percent on new preferred stock issues, and 4.00 percent on new debt issues. Wharton has included all direct and indirect flotation costs in these rates. The preferred shares were issued six years ago and pay an annual dividend of $1.31 per share. Last year, Clearview Systems Ltd. declared and paid a common share dividend of $2.46 per share. This represented a 4.00 percent growth in the common share dividend (a rate that is expected to continue into the future) and a dividend payout ratio of 30.0 percent (also expected to continue into the future). Clearview Systems Ltd.'s tax rate is 40.0 percent. Preliminary year-end results show net earnings (after interest, taxes and preferred share dividends) for the year ending December 31, 2020 is $5.0 million Pref The following table is presented to help you organize the information from the case: (Note: Some of these variables will need to be calculated. You won't find all of them in the case) (Round all your inputs to two decimal places you want to enter the number 12.34% for example,enter 1234 (not 01234) and do not enter the percent sign) Bonds Common percent Dp: 01: Te: percent Pp: PO: percent percent percent percent Requirements: E] ] A. Find market values of outstanding bonds, preferred shares and common shares: 1. Bonds: a. What is the market value of each bond? (Enter your answer to two decimal places, le... $12.34) b. What is the total market value of bonds at Dec 31, 2020 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million) 2. Preferred shares: What is the total market value of preferred shares at Dec 31, 2020 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million 3. Common shares: What is the total market value of common shares at Dec 31, 2020 (Round your answer to whole numbers. For example, $1,234,000 not $1.234 million B. What weights are assigned to debt, preferred shares and common equity on Dec 31, 2020 (Round all your answers to two decimal places. If you want to enter the number 12.34% for example, enter 12.34 (not 0.2234) and do not enter the percent sign) Debt Preferred Common percent percent percent C. Calculate the after-tax cost of the various components of WACC: (Round all your answers to two decimal places. If you want to enter the number 12.34% for example, enter 12.30 (nor 0.1234) and do not enter the percent sign) 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: percent percent percent percent ] 1 percent percent 3. Common equity in the form of retained earnings: 4. Common equity in the form of new shares: D. What is the weighted Average cost of Capital if: found all your answers to two decimal places. If you want to enter the number 12.343, for example, enter 12.34 (not 0.1234) and do not enter the percent sign.) 1. the company uses new debt, new preferred shares and just retained earnings? Weights After-tax Cost Weighted Cost Debt Pref Common E percent percent percent percent WACC 2. the company uses new debt, new preferred shares and new common shares? After-tax Cost Weighted Cost Weights Debt Pref Common E WACC percent E. How much of the new capital projects can be funded without using new shareholders? $ 12, 237,762