I need the answer to question 9 based on the information given.

1. The firm should use the weighted average cost of capital to evaluate whether or not to invest in this CPEX because the firm's target capital structure is 30% long-term debt, 10% preferred stock, and 60% common stock equity. You want to incorporate all these elements when using WACC. And it's the minimum required return for all providers of capital. It will be just legitimate if the expenses of a wide range of capital, in relation to their weights, are incorporated in order to evaluate the possibility of the project, considering the expenses of financing it. 2. The firm's after-tax cost of debt financing is the coupon rate because it's selling at par value. The cost of debt is 5%. I 3. The firm's cost of preferred stock financing: preferred dividendi par value x dividend rate=100 x 8% $8. Market price of preferred share: $113, cost of preferred: preferred dividend/ market price of preferred share = 8/113 is 7.08%. 4. Cost of financing using CAMP method of retained earnings is 10.8% 5. {4.20* (1+0.025750) +0.025= {(4.20*1.025)50) + 0.025= (4.305/50) + 0.025 -0.0861+0.0250.1111 or 11.11%. 6. Cost of financing using Gordon Growth Model of retained carnings is [4.20*(1+0.025)/(50 7.50 +0.025-(4.305/42.5) + 0.025 0.1012941176470588+0.025 - 12.63% 7. Firm's cost of equity, if the firm issues new common stock is: (30% *5%) + (10% *7.08%) +60% * 10.8%) = 7.21% 8. Firm's weighted average cost of capital if the firm uses debt, preferred stock and retained earnings is: (0.30 *5.06) *(1-0.21) + (0.10*7.21%) + (0.60*11.11) =0.30*5.06*0.79 +0.721 + 6.666) =1.199922 +0.721+ 6.666%) =8.59%. 9. Should the firm finance the plant's machinery upgrade? If so, how should the firm finance it (using the weighted average cost of capital described in step 7 or 8) and why? Provide evidence to support your recommendation (e.g., calculate NPV and/or IRR of the CAPEX project) [10 points) Cost of Capital and Capital Budgeting Ch. 9 mini-case Sap Paper Mill is considering $165 million upgrade of its machinery. Once the plant is upgraded, the machinery will last for 30 years. The upgrade is expected to generate the following net cash flows: $28 million per year in the first decade after the investment $18 million per year in the second decade after the investment $10 million per year in the last decade of the investment At the end of the 30th year, the firm anticipates that it will be able to sell the old equipment as parts for a total salvage value of $2 million. Before committing to this investment, the company asked you, their business Consultant, to evaluate this capital budgeting project given the various sources of funding available to them. To assist you, the firm gathered the following data: The firm's corporate tax rate is currently 21 percent. This tax rate is not expected to change throughout the life of the project. The company can issue 30-year bonds with a 5% coupon, paid semi-annually, and par value of $1,000. The bonds will sell at their face value, but each bond will carry a flotation cost of 1% of the par value. The current price of the firm's 8 percent, $100 par value, preferred stock is $113. If the firm issues new preferred stock, the firm will have to maintain the preferred stock dividend rate constant and pay $2 in flotation costs per each new preferred share issued. The firm's common stock is currently selling for $50 per share. Its last dividend (DE) was $4.20 per share. Common stock_dividends are expected to grow at a constant rate of 2.5 percent per year in the foreseeable future. If the firm issues new common stock, the net proceeds per share are estimated to be 15 percent less than the current price of common share. Sap's beta is 1.70. The yield on a 30-year US Treasury Bond is 4 percent per year, and the S&P 500 index has a rate of return of 8 percent per year. The firm's target capital structure is 30 percent long-term debt, 10 percent preferred stock, and 60 percent common stock equity Given this information, the firm asked you to answer the following questions and provide supporting evidence (formulas, calculations, ste) behind your evaluations. 1. Why should the firm use the weighted average cost of capital to evaluate whether or not to invest in this CAPEX project? [10 points) 2. What is the firm's after-tax cost of debt financing? [10 points) 3. What is the firm's cost of preferred stock financing? [10 points) 4. According to the CAPM, what is the firm's cost of financing using the retained earning? [10 points) 5. According to the Gordon Growth Model, what is the firm's cost of financing using the retained carning? [10 points) 6. What is the firm's cost of equity, if the firm issues new common stock? [10 points) 7. What is the firm's weighted average cost of capital if the firm uses debt, preferred stock and retained camnings? What cost of retained earnings did you use here (from step 4 or 5) and why? [15 points) 8. What is the firm's weighted average cost of capital if the firm uses debt, preferred stock and equity from the new common stock issue? [15 points) 9. Should the firm finance the plant's machinery upgrade? If so, how should the firm finance it (using the weighted average cost of capital described in step 7 or 8) and why? Provide evidence to support your recommendation (e.g., calculate NPV and/or IRR of the CAPEX project) [10 points) 1. The firm should use the weighted average cost of capital to evaluate whether or not to invest in this CPEX because the firm's target capital structure is 30% long-term debt, 10% preferred stock, and 60% common stock equity. You want to incorporate all these elements when using WACC. And it's the minimum required return for all providers of capital. It will be just legitimate if the expenses of a wide range of capital, in relation to their weights, are incorporated in order to evaluate the possibility of the project, considering the expenses of financing it. 2. The firm's after-tax cost of debt financing is the coupon rate because it's selling at par value. The cost of debt is 5%. I 3. The firm's cost of preferred stock financing: preferred dividendi par value x dividend rate=100 x 8% $8. Market price of preferred share: $113, cost of preferred: preferred dividend/ market price of preferred share = 8/113 is 7.08%. 4. Cost of financing using CAMP method of retained earnings is 10.8% 5. {4.20* (1+0.025750) +0.025= {(4.20*1.025)50) + 0.025= (4.305/50) + 0.025 -0.0861+0.0250.1111 or 11.11%. 6. Cost of financing using Gordon Growth Model of retained carnings is [4.20*(1+0.025)/(50 7.50 +0.025-(4.305/42.5) + 0.025 0.1012941176470588+0.025 - 12.63% 7. Firm's cost of equity, if the firm issues new common stock is: (30% *5%) + (10% *7.08%) +60% * 10.8%) = 7.21% 8. Firm's weighted average cost of capital if the firm uses debt, preferred stock and retained earnings is: (0.30 *5.06) *(1-0.21) + (0.10*7.21%) + (0.60*11.11) =0.30*5.06*0.79 +0.721 + 6.666) =1.199922 +0.721+ 6.666%) =8.59%. 9. Should the firm finance the plant's machinery upgrade? If so, how should the firm finance it (using the weighted average cost of capital described in step 7 or 8) and why? Provide evidence to support your recommendation (e.g., calculate NPV and/or IRR of the CAPEX project) [10 points) Cost of Capital and Capital Budgeting Ch. 9 mini-case Sap Paper Mill is considering $165 million upgrade of its machinery. Once the plant is upgraded, the machinery will last for 30 years. The upgrade is expected to generate the following net cash flows: $28 million per year in the first decade after the investment $18 million per year in the second decade after the investment $10 million per year in the last decade of the investment At the end of the 30th year, the firm anticipates that it will be able to sell the old equipment as parts for a total salvage value of $2 million. Before committing to this investment, the company asked you, their business Consultant, to evaluate this capital budgeting project given the various sources of funding available to them. To assist you, the firm gathered the following data: The firm's corporate tax rate is currently 21 percent. This tax rate is not expected to change throughout the life of the project. The company can issue 30-year bonds with a 5% coupon, paid semi-annually, and par value of $1,000. The bonds will sell at their face value, but each bond will carry a flotation cost of 1% of the par value. The current price of the firm's 8 percent, $100 par value, preferred stock is $113. If the firm issues new preferred stock, the firm will have to maintain the preferred stock dividend rate constant and pay $2 in flotation costs per each new preferred share issued. The firm's common stock is currently selling for $50 per share. Its last dividend (DE) was $4.20 per share. Common stock_dividends are expected to grow at a constant rate of 2.5 percent per year in the foreseeable future. If the firm issues new common stock, the net proceeds per share are estimated to be 15 percent less than the current price of common share. Sap's beta is 1.70. The yield on a 30-year US Treasury Bond is 4 percent per year, and the S&P 500 index has a rate of return of 8 percent per year. The firm's target capital structure is 30 percent long-term debt, 10 percent preferred stock, and 60 percent common stock equity Given this information, the firm asked you to answer the following questions and provide supporting evidence (formulas, calculations, ste) behind your evaluations. 1. Why should the firm use the weighted average cost of capital to evaluate whether or not to invest in this CAPEX project? [10 points) 2. What is the firm's after-tax cost of debt financing? [10 points) 3. What is the firm's cost of preferred stock financing? [10 points) 4. According to the CAPM, what is the firm's cost of financing using the retained earning? [10 points) 5. According to the Gordon Growth Model, what is the firm's cost of financing using the retained carning? [10 points) 6. What is the firm's cost of equity, if the firm issues new common stock? [10 points) 7. What is the firm's weighted average cost of capital if the firm uses debt, preferred stock and retained camnings? What cost of retained earnings did you use here (from step 4 or 5) and why? [15 points) 8. What is the firm's weighted average cost of capital if the firm uses debt, preferred stock and equity from the new common stock issue? [15 points) 9. Should the firm finance the plant's machinery upgrade? If so, how should the firm finance it (using the weighted average cost of capital described in step 7 or 8) and why? Provide evidence to support your recommendation (e.g., calculate NPV and/or IRR of the CAPEX project) [10 points)