Problem 3 Show all work Whitson Hog Heaven Inc. has the following capital budgeting opportunities this year. The following are th IRR and corresponding investments required by the projects listed below:

Project IRR Investment

A 10% $1,000

B 13% $3.000

C 14% $2,000

D 9% $5,000

E 15% $9,000

Whitsons balance sheet is: Assets $600,000 Liabilities: $500,000

Equity $100,000

Whitson has available to him 3 sources of debt. Short term debt available of $5,000 and Long-term debt of up to $6,000 and above $6,000. The after-tax cost of these debts in random order are 12%, 10% and 14%. Whitson has earned net income of $10,000 and pays dividends of 0.02 cents a share on 100,000 shares. He will in the future grow that dividends by 10% a year. He can issue new common stock with an underwriting charge of 15%. His share value is determined by his historical equity value on the balance sheet per share.

1. Compute the points where Whitsons source of funds run out based on capital spending. (Break points)
2. Graph the IOS/MCC schedule.
3. What is the optimal capital budget?
4. What happens to Ka when: Make sure to explain your answer. 1. Market interest rates increase. 2. A firm exceeds it borrowing capacity. 3. The growth rate to dividends is increased