The company is considering expansion to several projects. The project is expected to be implemented in early 2002

Based on banking analysis it turns out that the Bank still wants to provide additional loans to companies worth $ 9,000,000 with an interest of 10%; If the company adds more loans (more than $ 9,000,000), an interest of 12% will be charged. Determination of the higher interest expense is because the company has a greater risk.

A summary of the company's financial position at the end of 2001 is as follows

Remarks Amount of Debt $ 125,000,000 Preferred Shares $ 125,000,000 Equity (equity) $ 250,000,000 Amount of $ 500,000,000

The company's profit in 2001 was $ 80,000,000, and the company retained a dividend payout ratio of 45%. In 2002 it was expected that the company would get a Return on Equity (ROE) of 12%. The number of shares outstanding is 10,000,000 shares, the current stock price is $ 36 per share. Flotation costs for new shares are 5% of the stock price.

Whereas the preferred stock price is $ 40 per share with a dividend of 10% with an issuance fee of $ 5. Corporate tax is 30%.

The financial manager requested that the capital structure in 2002 and continue to maintain the capital structure as in 2001, because this capital structure is considered the most ideal (optimum).

Question

1. Calculate cost components such as cost of debt after tax; cost of preferred stock, cost of retained earnings and cost of new common stock.

2. Calculate WACC for the additional debt of $ 9,000,000

3. Calculate the Retained earnings breakpoint

4. Calculate WACC for the additional equity derived from retained earnings of $ 14,400,000

5. Calculate WACC if additional equity is obtained from the issuance of new shares

6. Draw a Marginal Cost of Capital (MCC) curve.