MGT 325 Module 5 Spreadsheet Exam - this is one long problem or case study. Please show all of your work. Please place your answers to each question in each part in the outlined boxes in the yellow spaces at the bottom of the worksheet. To do this exam you need to study the cases at the end of Chapter Eleven. Remember that the cost of debt when calculated is before tax and has to be converted to an after tax return. The returns on preferred and common stock are already after tax so are not adjusted, which is explained in Chapter ten. PROBLEM FOR CHAPTERS TEN AND ELEVEN Saint Leo Manufacturing is going to introduce a new product line and to accomplish this it has four projects analyzed in which it wants to invest a total of $100 million. Your job is to find what it will cost to raise this amount of capital based on the cost of the capital as outlined below: PROJECTS A B C D INVESTMENT $30,000,000 $20,000,000 $25,000,000 $25,000,000 EXPECTED RETURN 10.00% 14.00% 11.50% 16.00% The firms capital structure consists of: FMV CAPITAL PERCENTAGE AMOUNT DEBT 30% $15,000,000 PREFERRED STOCK 10% $5,000,000 COMMON STOCK 60% $30,000,000 $50,000,000 Other information about the firm: CORPORATE TAX RATE 35% DEBT CURRENT PRICE $900.00 ANNUAL INTEREST 9.00% CURRENT INTERST PAID SEMIANNUALLY ORIGINAL MATURITY 25 YEARS, BUT NOW 20 YEARS LEFT MATURITY VALUE $1,000.00 FLOTATION COST INSIGNIFICANT MARKET YIELD PROJECTED: UP TO $20 MILLION 9% ABOVE $20 MILLION 12% 3 % additional premium PREFERRED CURRENT PRICE $50.00 LAST DIVIDEND (D0) $5.00 FIXED AT 10% OF PAR FLOTATION COST $2.00 NEXT DIVIDEND (D1) $5.00 COMMON CURRENT PRICE $33.00 LAST DIVIDEND (D0) $1.50 RETAINED EARNINGS $16,000,000 GROWTH RATE (g) 9% FLOTATION COST $3.00 NEXT DIVIDEND (D1) $1.635 NOTE - Once retained earnings is maxed out, new common stock will need to be issued. Any preferred stock would be new preferred stock. You may want to review the case in chapter 11. REQUIRED: In all of the required parts, one part builds on the previous part. If you can't do a part, use the set of other numbers to solve the next part. a. What is the current Kd, Kp, and Ke assuming no new debt or stock is issued? b. Since any new capital investment will require issuing new preferred stock, what would the the new returns be for the preferred stock (knp) and the new cost of capital? c. What is the amount of increase (marginal cost of capital) in capital structure (in $) where the firm runs out of retained earnings and would be forced to issue new common stock? d. If new common stock has to be issued, what is the new return required to be (Kne) and the new cost of capital