use the financial statement with the following assumptions: current rate on US government bonds 3%, beta for the company equity of 1.3, long term equity returns 7% above US government bonds, the current market price of the companys common stock of 14.40 per share, the rate of interest paid on the companys long term debt is the current market rate of 5% and the market value of the companys debt is equal to the book value

1. cost of debt capital for 2018 after tax as a %

none, 5%, 2.667, 3.5, 1.5

2. cost of equity capital for 2018 as a %

10.9%, 13%, 12.1%, none, 10%

3. calculate the weighted average cost of capital for 2018

15.6%, 15, 11.24, none, 17.1

Income Statement Year Ended 12/31/2018 Sales $ 7,000,000 100.0% Year Ended or 12/31/2017 Sales $ 5,600,000 100.0% 2018 vs 2017$$ $ 1,400,000 2018 2017 % Change 25.0% Sales Cost of Goods Sold Direct Materials Direct Labor Overhead 1,000,000 14.3% 550.000 7.9% 1,200,000 17.1% 2,750,000 39.3 800,000 14.3% 480,000 86% 1,050,000 18.8% 2,330,000 41.6% 200.000 70,000 150 000 25.0% 14.6 14.3% Total Cost of Goods Sold 420,000 18.0% 4,250,000 60.7N 3,270,000 $8.4% 980,000 30.0% 30.0% Gross Profit Operating Expenses General & Administrative Research & Development Seling Total Operating Expenses 1,300,000 18.6% 600,000 8.6% 570,000 8.1% 1,000,000 17.9% 550.000 9.8% 500,000 8.9% 300.000 50,000 70,000 14.0% 2,470,000 35.3N 2,050,000 36.6% 420,000 20.5% 560,000 Operating Income (EBIT) Interest Expense Pretax income Income Tax Expense Net Income Shares outstanding Balance Sheet 1,780,000 25.08 40,000 0.6% 1,740.000 522.000 7.5% 1,218,000 17.4% 500,000 1,220,000 21.8% 40,000 0.7% 1,180,000 236,000 42% 944,000 16.9% 560,000 286.000 274,000 45.9% QON 47.5% 121.2% 29.0% $ $ $ 500,000 As of 12/31/2018 As of 12/31/2017 12/31/2018 vs 12/31/2017 Assets Cash $ $ 1,267,500 250.000 430,000 100.500 2,048,000 200,000 260,000 350,000 80,000 890,000 $ 1,067,500 (10,000) 80,000 20.500 1,158,000 Accounts Receivable Inventory Prepaid Expenses Total Current Assets Land Buildings Machinery & Equipment Other Fixed Assets Fixed Assets, Gross Accumulated Depredation Total Fixed Assets, Net Total Assets Liabilities Accounts Payable Accrued expenses Other Current Liabilities Total Current Liabilities Long Term Debt 800.000 400.000 380,000 270.000 1,850,000 (250,000) 1,600,000 800,000 400,000 250,000 140,000 1,590,000 (200,000 1,390,000 130,000 130,000 260,000 (50,000) 210,000 $ 3,648,000 $ 2,280,000 $ 1,368,000 $ $ $ 100,000 300,000 250,000 150.000 700,000 800.000 200,000 250,000 100,000 550,000 50.000 150,000 800,000 800,000 800,000 1,350,000 1,500,000 150,000 $ Total Non-Current Liabilities Total Liabilities Stockholders' Equity Common Stock (500,000 shares @ $.01 par value) Additional Paid in Capital Retained Earnings Total Stockholders' Equity Total Liabilities & Stockholders' Equity Statement of Cash Flows 5.000 525,000 1,618,000 2,148,000 3,648,000 5,000 525,000 400,000 930,000 1,218,000 1,218,000 $ 1,368,000 $ $ 2,280,000 Year Ended 12/31/2018 Year Ended 12/31/2017 $ 1,218,000 $ 944,000 Operating Activities Net Income Adjustments to reconcile Net Income to Net Cash provided by Operating Activities: Depreciation Decrease (Increase) in Accounts Receivable Decrease (Increase) in Inventory Decrease (Increase) in Prepaid Expenses Increase Decrease) in Accounts Payable Increase (Decrease) in Other Current Liabilities Net Cash provided by Operating Activities 50,000 10,000 180.000) 20.500) 100,000 50.000 1,327,500 50,000 (50,000) (60,000) (30,000) 50.000 100,000 1,004,000 800,000 800,000 1,500,000 1,350,000 150,000 $ Total Non-Current Liabilities Total Liabilities Stockholders' Equity Common Stock (500,000 shares @ $.01 par value) Additional Paid in Capital Retained Earnings Total Stockholders' Equity Total Liabilities & Stockholders' Equity Statement of Cash Flows 5.000 525.000 1,618,000 2,148,000 5,000 525,000 400,000 930,000 1,218,000 1,218,000 $ 3,648,000 $ 2,280,000 $ 1,368,000 Year Ended 12/31/2018 Year Ended 12/31/2017 $ 1,218,000 $ 944,000 Operating Activities Net Income Adjustments to reconcile Net Income to Net Cash provided by Operating Activities: Depreciation Decrease (Increase) in Accounts Receivable Decrease increase) in Inventory Decrease (Increase) in Prepaid Expenses Increase Decrease) in Accounts Payable Increase (Decrease) in Other Current Liabilities Net Cash provided by Operating Activities 50,000 10,000 (80.000) (20.500) 100.000 50,000 1,327,500 50.000 (50,000) (60,000) (30,000) 50,000 100,000 1,004,000 Investing Activities Purchases of Fixed Assets Net Cash used by Investing Activities (260,000) (260,000) (600,000) (600,000) Financing Activities Change in Current Portion of Debt Change in Long Term Portion of Debt Change in Other Non-Current Liabilities Net Cash provided by Financing Activities Change in Cash Balance Cash at Beginning of Year Cash at End of Year (200,000) (14,000) (214,000) 190,000 1,067,500 200,000 10,000 $ 1,267,500 $ 200,000