stock equity for at least the next $3$ years. The firm is in the $40\%$ tax bracket.

To estimate the firm's weighted average cost of capital $($WACC$),$ Jen contacted a leading investment banking firm, which provided the financing cost data shown in the following table.

Financing Cost Data

Star Products Company

Preferred stock: Preferred stock, regardless of the amount sold, can be issued with a $$70$ par value and a $14\mathrm{.}0\%$ annual dividend rate and will net $$65$ per share after flotation costs.

To Do

a$.$ Calculate the cost of each source of financing, as specified:

$(1)$ Long$-$term debt, first $$450,000.$

$(2)$ Long$-$term debt, greater than $$450,000.$

$(3)$ Preferred stock, all amounts.

$(4)$ Common stock equity, first $$1,500,000.$

$(5)$ Common stock equity, greater than $$1,500,000.$

b$.$ Calculate Star's weighted average cost of capital $($WACC$)$ for each of the following situations:

$(1)$ Long$-$term debt less than $$450,001$ and common stock equity less than $$1,500,001.$

$(2)$ Long$-$term debt greater than $$450,000$ and common stock equity less than $$1,500,001.$

$(3)$ Long$-$term debt greater than $$450,000$ and common stock equity greater than $$1,500,000.$

c$.$ Answer the following questions while considering Star's current capital structure and your answers to part $($b$).$ Be sure to explain your answers.

$(1)$ How much long$-$term debt can Star use before affecting its cost of common stock?

$(2)$ What is the maximum amount of financing that Star can raise without using the more expensive new common stock?

$(3)$ In part $($b$),$ why were you not asked to calculate Star's WACC when long$-$term debt is less than $$450,001$ and common stock equity is greater than $$1,500,000?$

d$.$ Regardless of Star's WACC, rank the projects according to most attractive to least attractive and explain your ranking procedure.

e$.$ Based on the current capital structure and each of the financing scenarios below, determine which investment opportunities Star should undertake. Explain your answers.

$(1)$ Long$-$term debt of $$450,000.$

$(2)$ Common stock equity of $$750,000.$

$(3)$ Common stock equity of $$1,500,000.$

$(4)$ Long$-$term debt of $$1,000,000.$