financial analysis and budgeting

Question \#1 (14 Marks) American Movie Theatre Co (AMC), is struggling for survival as fewer people go to the movie theatres. AMC is thus considering a new project, an investment in digital chimpanzee artwork. This will require an investment of $40 million and it is expected that it will earn a return of 8%. Since the company is nearly bankrupt, the bank is only willing to provide a small portion of debt financing, with the remainder of the financing through the sale of preferred, common shares, and retained earnings. The breakdown of projected financing is as follows: The treasurer of AMC has calculated the following cost information but needs you to complete all necessary work to determine if this investment in the new crypto should be made. Cost data already properly determined: - The cost of preferred share financing is 12% - The cost of retained earnings financing is 21% Additional information provided: - The stated rate of interest regarding the long-term borrowings is 7%. - The common shares will be issued at a market price of $5 per share and it is anticipated that they will yield an annual dividend of $1 per share. The investment bank will charge an issuance cost (ie. flotation costs) of $0.40 per share. - The income tax rate for the company is 38% - AMC has an annual growth rate of 1%. Required: 1.) Calculate the cost of (a) long-term borrowings financing as a %, and (b) common share financing as a %. (Round your final answers as a% to 2 decimals places and show all work) (6 marks) 2.) Calculate the weighted average cost of capital (WACC) for the project investment as a %. ( 6 marks) (Use the worksheet table provided in the answer working papers.) (Round all calculated \%'s to 1 decimal place.) 3.) Based on your answer in requirement 2 , should the investment in the digital chimpanzee artwork be made? Briefly explain why. (2 marks)