DO NOT ANSWER WITHOUT A SPREADSHEET

Requirements: Submit an Excel spreadsheet with 4 tabs, one for each: Cost of Capital calculations, Project A, Project B, and Project C. A specific notation is to be made on the project which the student believes the company should pursue and why. This should be done based information below

Applied Manufacturing, Inc. (AM) is a custom metal fabrication corporation providing a wide range of goods and services to its customers. For decades, AM has been a parts manufacturer and supplier to the aerospace and naval industries. They service both major manufacturers such as Nordam, Boeing, and Airbus, as well as the United States Government in contracts for both military aircraft and naval vessels. While the existing lines of business are profitable, senior leadership of the corporation is pushing for the creation of new lines of business that will generate new revenue streams that are not dependent on their existing clients. As part of its budgeting process for the next year, the senior leadership team has identified three mutually-exclusive projects which meet the strategic goals mentioned above. As a member of the senior leadership team, you have been assigned the task of performing a financial analysis of these projects to determine the appropriate valuation of each one. However, before you can determine the appropriate valuations of these projects, you need to determine the weighted average cost of capital for the firm. Senior management has a preference in using the market values of the firms capital structure and believes its current structure is optimal. BALANCE SHEET Cash 1,789,298 Accounts Payable and Accruals 28,204,824 Accounts Receivable 52,740,911 Notes Payable 48,240,305 Inventories 70,670,223 Long-Term Debt 77,260,000 Preferred Stock 15,000,000 Net Fixed Assets 179,040,000 Common Equity 135,535,303 Total Assets 304,240,432 Total Liabilities & Equity 304,240,432 Market Values of Capital The company has 81,000 bonds with a 30-year life outstanding, with 15 years until maturity. The bonds carry a 10 percent semi-annual coupon, and are currently selling for $899.24. The company also has 150,000 shares of $100 par, 9% dividend perpetual preferred stock outstanding. The current market price is $90.00. Any new issues of preferred stock would incur a 3.6% per share flotation cost. The company has 5 million shares of common stock outstanding with a current price of $29.84 per share. The stock exhibits a constant growth rate of 10 percent. The last dividend (D0) was $.80. New stock could be sold with flotation costs of 6.7% per share. The risk-free rate is currently 6 percent, and the rate of return on the stock market as a whole is 13 percent. Your stocks beta is 1.18.