The management of Florida Phosphate Industries (FPI) is planning next years capital budget. FPI projects net income of $10,500, and its payout ratio is 40 percent. The companys earnings and dividends are growing at a constant rate of 5 percent. The last dividend, D₀, was $0.90; and the current equilibrium stock price is $8.59. FPI can raise up to $10,000 of debt at a 12 percent before-tax cost, the next $10,000 will cost 14 percent, and all debt after $20,000 will cost 16 percent. If FPI issues new common stock, a 10 percent flotation cost will be incurred on the first $16,000 issued, while flotation costs will be 20 percent on all new stock issued after the first $16,000. FPI is at its optimal capital structure, which is 40 percent debt and 60 percent common equity, and the firms marginal tax rate is 40 percent. FPI has the following independent, indivisible, and equally risky investment opportunities:

Project Cost Rate of Return

A $15,000 17%

B 15,000 16

C 12,000 15

D 20,000 14