Finaneing Cost Data Star Products Company $450.000 will have a before-tax eost, for of 213.97. Prefeered stock Prelerned stock, regardless of the amount sold, can be issued wif a 570 par value and a 14.0% annual dividend rale and will net $65 per share after fotation costs. underpricing and fotation costs. To Do a. Calavale the cost of each source of Inancing, as speofied: (1) Long-term dett, frst $450,000. (2) Long-tem dect, greater than $450,000. (3) Prederred stock, all amourbs. (4) Common stock equity. frst 31,500,000. (5) Common stock equity. greater than $1,500.000. b. Caiculate Star's weightid average cost of cactial (WACC) Sor each of the folowing shuations: (1) Loeg-term deet was than $450,001 arid eommen stock equily less then $1,500,001. C) Long-term dest greater than $450.000 and common atock equily less than $1,500.001. (3) Long-tem dest greater fan $450,000 and common stock equity greater than $1,500.000. 6. Anseer the folowing quesions whle oonsidering star's cument captal structure and your anwwens bo part (b). Be sure to eaplain your anwers. (1) How much long-term debt can Star use before affecting its oont of common stock? (2) What is the maximum amount of finaving that shar can rwise without ving the more eapentive few cormon stock? d. Regardess of star's WMCC, rarik the profecte accocding to most attractive to lasit attractive and applain your racking prochdure. (1) Long-tay deet of 5450,000. 2) Coemon siock equily of 3750,000 . (9) Commen stock equily of 11,500,000. (4) Long-term deet of 51, 000.000. a. Calculale the cost of each source of financing, as speofed: (1) Long-tem debt, firsi $450,000. The Before-tax cost of dobt is K. (Round to two occimal piaces.) The after-tax cost of debt wit be he. RRosind to two decimat places. ] (2) Long-term debt, greater than $450,000. (3) Prederred stock, all amounts. (4) Commen stock equity. fral 51, 600,600. (5) Common stock equity. greater tran $1,800,000. The cost of common stock equity wal be IK. [Round to two desimal placens.) Making Star Products' Financinglinvestment Decision Star Products Company is a growing manufacturer of aulomobile accossories whose stock is actively traded on the over-the-counter (OrC) markot. During 2012, the Datas-based company experienced sharp increases in both sales and earnings. Bocause of this recont growth, Melissa Jen, the company's treasurer, wants to make sure that available funds are being used to their fullest. Management policy is to maintain the current capital structure proportions of 30% long-term debe. 10% preferred stock, and 60% common stock equity for at least the next 3 years. The firm is in the 40% tax bracket. Star's divisian and product managers have presented several competing investment opportunities to Jen. However, because funds are limited, choices of which projects to accept must be made. Star's current investment opportunities are shown in the table below. (3) Common stock equfy of \$1. $00.000. (sielect the best choice below.) A. Firancing $1,500,600 in common stock eqalty tegresants socal financing of 54,500,000. Feke projects C, D. B. F. and E B. Financing $5,500,000 in common stock equily resresents total financing of $2,500,000. Thke projects C,D,B,F, and G. c. Finaricing $1,560,000 in common stock equity represents totai franoing of $2,600,060. Take projects C, D, B, F, and A. D. Francing $1.500.000 in cotmen stock equily regrevents setal francing of $,560.000. Fake projects C. D. B and F. (4) Leng-tarm debe of $1,000,000, (selnct the best cholce belipw ) A. Financing 51,080,000 in lorg-term debe represents total financing of 33,393,333. Take projectu C. D, B. F, and F. B. Financing $1,000,000 in long-term debe represerts total financing of $3,333,333. Take profects C,D,B,F, and Q. C. Firancing 51,000,000 in long-term dobe represents total Anancing of 53,133,133. Takn projects C, D, B, F, and A. D. Francing $1,000,080 in lore them dete represents total financing of 53.393.333. Takn grejects C. D. 8 and F b. Calculate Star's weighted average cost of caplal (WhCC) for each of the following stuations: (1) Long-tiem deet wss than $450,001 and common stack equity lens than $1,500,001. The WaCe wal be in thoound to two decimal ploces ? (2) Long term dest greater than $450,000 and common stock equity less than $1,500,009. The WACC will be \&. Gpound to swo dacimal phoss) (3) Long term debt greater than $450,000 and common stock vily geater than $1,500,000. The WhCC wall be 6. (Hourd ta no decinal places) (1) How much long-term debt can 5 tar use before aflecting is cost d common stock? The Break point is given by AP=WiAEi The maximum amount of financing is 4 , RPound ts the nearest dofar. (2) What is the madimum amount of thanoing that Star can tase without using the more axpensive new common stock? A. Star would not istue the more eupensive naw shares while it can alial lasse prefered stock, B. Star would not issue the less expensive now shares while in can stal issue leng-term deet