Problem 2 Lonestar Inc. is planning to expand operations into the Central United States and needs to raise funds for the expansion. The firm's investors require a 14 percent rate of return, the form's bonds have a yield to maturity of 7 percent and the firm's marginal tax rate is 21 percent. The firm's balance sheet at the end of 2019 appears below. It is important to note that the firm's bonds were selling at par value and its stock was selling for a price of 2.25 times its book value at the end of 2019: Table 2: Balance Sheet for 2019 Assets Det & Equity $ Cash 2010.00 Accounts 4 580.000 Receivable 1.540,000 inventories Total Long current 8.130.000 term 8,141.000 assets debt Net property 32.575.000 Common 32,564.000 plant,& equity equipment Total Total 40.705.000 debt & 40.705,000 assets equity A Complete the following table to determine Lonestar's capital structure and the weighted average cost of capital (WACC). (7 points Table 3: WACC for initial Conditions Component Market Value Balance Sheet Proportion After-tax Cost Product Long-term debit Common equity Total WACC B. Assume Lonestar's stock price increases to 3.25 times its book value and the cost of equity increases to 15 percent. Complete the following table to determine the firm's new WACC? Assume the marginal tax rate and cost of debt remain the same. (7 points) Table 4 WACC for New Conditions Market value Component Proportion After-tax Cost Product Selling for a price of 2.25 mes is ook het the end of 2019 Table 2: Balance Sheet for 2019 Assets Debt Equity Cash 2.010.000 Accounts Receivable 4.580.000 1.540.000 Inventories Total Long $ current 8. 130.000 term 8.141.000 Jassets debt Net property 32.575.000 Common 32,564,000 plant, equity equipment Total Total 40.705.000 debt & 40.705.000 assets Jequity A. Complete the following table to determine Lonestar's capital structure and the weighted average cost of capital (WACC). (points) Table 3: WACC for initial Conditions Component Market Value Balance Sheet Proportion After-tax Cost Product Long-term debt Common equity Totals WACC B. Assume Lonestar's stock price increases to 3.25 times its book value and the cost of equity increases to 15 percent. Complete the following table to determine the firm's new WACC? Assume the marginal tax rate and cost of debt remoin the same. 7 points Table 4: WACC for New Conditions Component Market Value Balance Sheet Proportion After-tax Cost Product Long term debt Common equity Totals WACC