The Winter Textile Company has the following capital structure, which is optimal:

Debt $25\%$

Preferred stock $15$

Common equity $60$

Total capital $100\%$

Winter Textile$$s expected net income this year is $$18,000$; its established dividend payout ratio is $35\%$;

its federal$-$plus$-$state tax rate is $40\%$; and investors expect earnings and dividends to grow at a constant

rate of $8\%.$ Winter Textile is expected to pay a dividend of $$3\mathrm{.}00$ per share in the upcoming year, and

its stock currently sells at a price of $$70$ per share.

Winter Textile can obtain new capital as indicated below:

$$ Debt: Up to $$3,000$ of debt can be sold at an interest rate of $11\%$; debt in the range of $$3,001$ to

$$6,000$ must carry an interest rate of $13\%$; and all debt over $$6,000$ will have an interest of $15\%.$

$$ Preferred: New preferred could be sold at a price of $$120$ per share, with a dividend of $$10.$

Floatation costs of $$6$ per share would be incurred for up to $$4,000$ of preferred, while these costs

would rise to $$12$ on all preferred over $$4,000.$

$$ Common: New common stock would have a floatation cost of $10\%$ for up to $$7,000$ of stock and

$15\%$ for all common over $$7,000.$

The following are the $5$ projects $($all of them divisible$)$ under consideration by Winter Textile:

Project Initial Cost Annual after$-$tax CF Project Life $($Years$)$

A $$5,000$ $$1,050\mathrm{.}607$

B $5,0001,577\mathrm{.}215$

C $5,0001,085\mathrm{.}098$

D $10,0001,894\mathrm{.}7410$

E $10,0002,713\mathrm{.}926$

a$.$Find the break points in the MCC schedule.

b$.$Determine the component costs of capital for each capital structure component.

c$.$Calculate the weighted average cost of capital in the interval between each break in the MCC

schedule.

d$.$Calculate the IRR for Projects A$,$ B$,$ C$,$ D$,$ and E$.$

e$.$Construct a graph showing the MCC and IOS schedules.

f$.$Which projects should Winter Textile accept?

g$.$What are Winter Textile$$s marginal cost of capital and optimal capital budget?