Kimberly-Clark has an opportunity to invest $500,000 today in a new project that will generate positive free cash flows for five years. The free cash flows will be $100,000 per year for the first three years, then $250,000 per year for the final two years. K-C maintains 40% debt, 50% common equity, and 10% preferred stock, with total assets valued at $100 million The company also has a marginal tax rate of 21%.

1. Currently, K-C bonds sell for $1,050. They have five years to maturity and a 10% coupon rate, and $1,000 par value. The bond makes semi-annual coupon payments. What is the before-tax cost of debt for K-C? (3 points)

2. Currently, the 5-year U.S. T-bond has a 2.5% yield, and the required return on the market is 10%. Given a beta for K-C stock of 1.1, what cost of equity is implied by the CAPM? (3 Points)

3. The preferred stock of K-C sells for $50. The next dividend is expected to be $4.50. What is the cost of preferred stock? (3 points)

d. What is the WACC for K-C? (3 points)

5. Should K-C accept this project? Why? Justify your answer. (3 points)