Problem One Company A has the following capital structure, which it considers to be optimal: Debt $50,000 Preferred Stock $20,000 Common Equity from retained earnings $15,000 Common Equity from issuing new stocks $15,000 Total Liabilities & Equity $100,000 The following information is relevant to Company A: Before-tax cost of debt is 12%. The tax rate is 35%. Preferred stock with a dividend of $2 is currently sold to the public at a price of $30 per share. The common stock's last dividend paid was $1 per share, and its common stock currently sells for $35 per share, and dividends are expected to grow at a constant rate of 8%. The company can obtain new capital by selling new common stock to the public with a flotation cost of 11% Company B's WACC is 10%. It has three Projects it can choose from: Projects X, Y and Z. The following information is available regarding Project X. Years 0 1 2 3 Project X cash flows -$100 80 60 40 And the following information is available regarding Projects Y and Z. Criteria Project Y Project Z NPV $40 $67 MIRR 10% 20% IRR 2.0% 18.7% Regular Payback 2.23 years 1.77 years Problem One Company A has the following capital structure, which it considers to be optimal: Debt $50,000 Preferred Stock $20,000 Common Equity from retained earnings $15,000 Common Equity from issuing new stocks $15,000 Total Liabilities & Equity $100,000 The following information is relevant to Company A: Before-tax cost of debt is 12%. The tax rate is 35%. Preferred stock with a dividend of $2 is currently sold to the public at a price of $30 per share. The common stock's last dividend paid was $1 per share, and its common stock currently sells for $35 per share, and dividends are expected to grow at a constant rate of 8%. The company can obtain new capital by selling new common stock to the public with a flotation cost of 11% Company B's WACC is 10%. It has three Projects it can choose from: Projects X, Y and Z. The following information is available regarding Project X. Years 0 1 2 3 Project X cash flows -$100 80 60 40 And the following information is available regarding Projects Y and Z. Criteria Project Y Project Z NPV $40 $67 MIRR 10% 20% IRR 2.0% 18.7% Regular Payback 2.23 years 1.77 years