Browning Bookbinding LTD has the following capital structure: 65% common & 5% preferred stock; 30% long-term debt. The fair-value risk premium of Browning Bookbinding LTD stock vs. long-term government bonds is 12%. The 20-year US Govt. bond yield is 5.0%. Brownings credit rating is BBB+ and the credit spread for 20-year BBB+ corporate debt is 2.5%. Brownings tax rate is 35%. The firm recently issued preferred stock at $50/share par value that pays a 10% dividend yield. Issuance costs of the preferred were 5% of par. (25 pts)

1. Calculate Browning Bookbinding LTDs cost of equity? (5 pts)

2. Calculate Brownings pre-tax & after-tax cost of debt? (5 pts)

3. Calculate the cost of preferred stock net of issuance? (5 pts)

4. Browning is considering expanding its operations abroad and wants to determine its weighted average cost of capital. Calculate Brownings WACC using the above information. (5 pts)

5. The IRR of Brownings expansion is 15%. If it finances the project with retained earnings (i.e. all equity), should it proceed with the project? Why or why not? (2.5 pts)

6. If Browning Bookbinding LTD wants to finance the project using all three sources of financing in the proportions stated above, should it proceed with the project? Why or why not? (2.5 pts)