Highpark Industries (HPI) currently has $15,000,000 in bonds ($1,000 face value for each bond) outstanding with a coupon rate of 5% paid semiannually and a maturity of 15 years. The bonds are currently selling at a quoted price of 96. The company also has 80,000 shares of 6% preferred stock outstanding currently selling for $95 per share with a par value of $100. In addition, the company has 300,000 common shares outstanding selling for $60 per share and with a book value of $30. The firm has a tax rate of 40% and a beta of 1.5. The risk-free rate is 2.5%, and the market risk premium is 5%. Flotation cost to issue new debt is 4%, new preferred share is 5%, and new common share is 10%. The firm has internally generated funds available to cover 30% of the common equity cost of the project.

Over the last two years, HPI incurred a cost of $40,000 for conducting a feasibility study on a new project, which has the same level of risk as the firm. The project requires purchasing a new machine that will cost $1,200,000.

a) Calculate the before-tax cost of debt. (4 marks)

b) Calculate the cost of preferred shares. (2 marks)

c) Calculate the cost of common equity. (2 marks)

d) What are the capital structure weights useful to compute the WACC? (3 marks)

e) Calculate the firms WACC. (3 marks)

f) Calculate the weighted average flotation cost. (3 marks)

g) Compute the time 0 cash outflow for this project. (3 marks)