CBA is a security company service provider to many big orgnizations. It has many investment opportunity to add to their business. Due to lack of capital CBA can spend up to 2 million in new investment opportunity. The decisions are made using IRR or internal rate of return and has the following information.

PROJECT NAME IRR COSTS

A 18% 500,000

B 14% 600,000

C 12% 700,000

D 11% 400,000

E 20% 800,000

The preferred capital structure for CBA is 40% in debt, 10% in preferred , and 50% in equity.

The manager for CBA has also determined that it has 150,000 avaliable in R/E (retained earnings) and they can borrow 300,000 without any financian cost.

The cost of debt, preferred shares, and equity are at 8%, 10%, and 20% net of tax respectively. The range of financing cost beyond breaking points are

10% debt preferred 10% (no change) and equity 20%

second breaking point is debt 12% preferred 10% and equity 24%

Required:

1. compute the weighted average cost (WACC) and complete the marginal cost of capital (MCC) for various range of finance

2. Draw the firm's marginal cost of capital and the investment opportunity schedule

3. Which projects they should be selecting? why?

4. calculate overall cost of capital for CBA