Lancaster Engineering Inc. (LEI) has the following capital structure, which it considers to be optimal: 25% Debt Preferred stock 15% Common equity ity 600 Total 100% LEI is expected to pay a dividend of 3.24 per share next year, its stock currently sells for $54 per share, and investors expect dividends to grow at a constant rate of 9 percent in the future. LEI's tax rate is 40 percent. LEI can obtain new capital in the following ways: New preferred stock with a dividend of $9.5 can be sold to the public at a price of $95 per share. Debt can be sold at an interest rate of 12 percent. a. Determine the cost of each capital component. b. Calculate the WACC. 3 | Page 4 R EVERITY B c. LEI has the following investment opportunities that are average-risk projects for the firm: Project Cost att- Rate of Return S10.000 16.4% 20,000 15.0% 10,000 20,000 12.0% 10,000 11.5% Which projects should LEI accept? Why? Question N6: (06 Marks) Why is the after-tax cost of debt rather than the before-tax cost used to calculate the WACC