Case 3: Capital Budgeting, Capital Structure, and the cost of cpital Company DEF has enjoyed several consecutive profitable years and has accumulated $80,000,000 in cash and marketable securities. The company is considering multiple potential uses for the excess cash. Option 1: Option 2: Build a new manufacturing facility at an initial cost of $20,000,000. The facility is expected to generate an additional $7,000,000 in annual sales. assume no new fixed costs and variable costs equal to 55% of sales. For depreciation calculations, assume a 10-year life and straight-line depreciation. Use half of the current cash balance to repurchase shares of out tanding stock through a tender offer (4,000,000 shares at $10 per share). Use half of the current cash balance to pay off long-term debt. Pay a special dividend of $4.00 per share. Increase the regular dividend to $4.00 per share. Option 3: Option 4: Option : The company has 10,000,000 shares of stock outstanding that are currently priced at $10 per share. The company paid a dividend of $1.25 per share last year and expects dividends to grow at 4% annually. It also has 180,000 bonds outstanding that pay a 6% coupon rate and mature in 5 years. The current price of the bonds is $980. Assume semi-annual interest payments. The tax rate is 21%. Hint: To calculate cash flows for years 1-10 CFT.30 = Sales - VC-Dep = EBIT -Taxes = NI + Dep=OCF 1) Calculate the cost of debt for Company DEF. 2) Calculate the cost of common equity for Company DEF. 3) Calculate the weighted average cost of capital for Company DEF. 4) Calculate the net present value (NPV) for option 1. 5) Calculate the internal rate of return (IRR) for option 1. Calculate the payback period for option 1. 7) Calculate the expected EPS for option 2 given an anticipated EBIT of $50,000,000 8) Calculate the expected ROE for option 2 given an anticipated EBIT of $50,000,000 9) Calculate the expected EPS for option 3 given an anticipated EBIT of $50,000,000 10) Calculate the expected ROE for option given an anticipated EBIT of $50,000,000