On January 1 , 2009 the total assets of the Shipley Company were $ 180 million.During the year, the company plans to raise and invest $ 90 million.The firms present capital structure is considered optimal.Assume that there is no short term debt.

Long term debt 90,000,000

Common Equity 90,000,000

Total Liabilities and Equity 180,000,000

New bonds will have a coupon rate of 10% and will sell at par. Common stock,currently selling at $ 40 a share can be sold to net the company at$36 a share. Stockholders required rate of return is 12%.( The next expected dividend is $1.60). Retained earnings are estimated to be $9 million.The tax rate is 40%.

a.To maintain the present capital structure, how much of the capital budget must

Shipley finance by equity?

b.How much of the new equity funds needed must be generated

internally?Externally?

c.Calculate the cost of each of the equity components.

d.Calculate the weighted average cost of capital.