Brown Company has several capital projects they would like to consider and needs to compute their Marginal Cost of Capital. They have compiled the following information:

Net Income is $75,000 and the company pays a 40% dividend each year.

The last dividend paid on common stock was .75 and the company common stock sells for $30 today.

The YTM on their corporate bond is 8%. The bond was issued with a 6% coupon.

The company has $100 Par Value, 4% Preferred Stock, which has a current price of $45 per share.

The company has a growth rate of 10% and a marginal tax rate of 18%

The company would incur 10% floatation costs to issue new common shares. The flotation costs do not apply to the preferred stock.

Selected information from the companys balance sheet follows:

Long-Term Debt $30,000

Preferred Stock $10,000

Common Equity $60,000

Johnson is considering the following capital projects:

Project	Cost	IRR
A	$70,000	14%
B	$50,000	6%
C	$50,000	8%
D	$80,000	18%

Compute the Marginal Cost of Capital for Johnson

Compute Capital Structure Weights

Compute Retained Earnings Break Point

What is the Value of Retained Earnings?

Compute Break Point

Compute the component costs of:

Retained Earnings

New Common Stock

Preferred Stock

Debt

Determine the Marginal Cost of Capital (before and after the break point).

Which capital Projects should Johnson fund? You must demonstrate support.