Rolodex, Inc. is in the process of determining its capital budget for the next fiscal year. The

firm$$s current capital structure, which it considers to be optimal, is contained in the following balance

sheet:

Rolodex, Inc. Balance Sheet $($in millions of $$)$

Current assets $$110$ Accounts payable $$30$

Fixed assets $260$ Other current liabilities $20$

Total assets $$370$ Long$-$term debt $128$

Preferred stock $32$

Common stock $(20$ million shares$)50$

Retained earnings $110$

Total liabilities & equity $$370$

Discussions between the firm$$s financial officers and the firm$$s investment and commercial bankers

yielded the following information:

$$ Debt: Rolodex can borrow $$40$ million from its bank at a pre$-$tax cost of $13\%.$ After using up its

bank loans, Rolodex can borrow $$80$ million by issuing bonds at a net price of $$687$ per bond. The

bonds would carry a $10\%$ coupon rate $($paying its interest twice a year$)$ and mature in $20$ years.

Additional bonds can be issued at a pre$-$tax cost of $16\%.$

$$ Preferred: Preferred stock can be issued at a pre$-$tax cost of $16\mathrm{.}5\%.$

$$ Equity: Rolodex can generate $$140$ million in net income and pay a $$2$ dividend per share. The $$2$

dividend per share $($D$1)$ represents a growth of $5\mathrm{.}5\%$ over the previous year$$s dividend. This growth

rate is expected to continue for the foreseeable future. The firm$$s stock is currently trading at $$16$

per share. Rolodex can raise external equity by selling common stock at a net price of $$15$ per

share.

$$ Tax: Rolodex$$s marginal tax rate is $40\%.$

The following are the available investment opportunities $($all projects are non$-$divisible$)$