Hershey Co. (HSY) has a target capital structure of 52% debt, 12% preferred stock, and 36% common equity. It has an after-tax cost of debt of 9.10%, and its cost of preferred stock is 10.20%. If Hershey can raise all of its equity capital from retained earnings, its cost of retained earnings will be 12.70%. However, if it is necessary to raise new common equity, it will carry a cost of 13.50%.

4. What is Hershey's weighted average cost of capital (WACC) if the firm decides to raise capital from issuing new common equity?

5. What is Hershey's weighted average cost of capital (WACC) if the firm decides to raise capital from retained earnings?

6. Should Hershey Co. raise capital by issuing new common equity or from retained earnings? Why?

Now Hershey Co. is considering a project that requires an initial investment of $870,000. The firm will raise the $870,000 in capital by issuing $430,000 of debt at an after-tax cost of 8.40%, $40,000.00 of preferred stock at a cost of 10.40%, and $400,000.00 of equity at a cost of 11.50%.

7. What is the WACC for this project?

8. Should this project be undertaken? Why?