Need solution

1. Mei Wah's Delivery Service is analyzing the credit terms of each of three suppliers, A, B, and C

supplier credit terms

A 1/15 net 40

B 2/10 net 30

C 2/15 net 35

a. determine the approximate cost of giving up the cash discount?

b. Assuming the firm needs short-term financing, recommend whether or not the firm should give up the cash discount or borrow from the bank at I0 percent annual interest. Evaluate each supplier separately?

c. What is "stretching accounts payable"? What effect does this action have on the cost of giving up a cash discount?

2. A firm has determined its optimal capital structure that is composed of the following sources and target market value proportions.

Source of Capital Target Market Portfolio

Long Term Debt 20%

Preferred Stock 10

Common Stock Equity 70

Debt: The firm can sell a 12-year, $1,000 par value, 7 percent bond for $960. A flotation cost of 2 percent of the face value would be required in addition to the discount of $40.

Preferred Stock: The firm has determined it can issue preferred stock at $75 per share par value. The stock will pay a $10 annual dividend. The cost of issuing and selling the stock is $3 per share.

Common Stock: A firms common stock is currently selling for $18 per share. The dividend expected to be paid at the end of the coming year is $1.74. its dividend payments have been growing at a constant rate for the last four years. four years ago,the dividend was $1.50. it is expected that to sell, a new common stock issue must be underpriced by $0.50 per share cost s $0.50 per share in flotation costs. also note that the firm has exhausted all retained earnings

the firm's marginal tax rate is 40%

Calculate the firm's weighted average cost of capital ?