Use the following information to answer the questions below;

Sanad Inc. is considering replacing an existing piece of equipment with a more sophisticated machine. The following information is given.

The firm has determined its optimal capital structure, which is composed of the following sources and target market value proportions: Source of Capital Target Market Proportions Long-term debt. 30% Preferred Stock 15% Common Stock 55%

Debt: The firm can sell a 20-year, $1,000 par value, 7 percent bond for $990. A flotation cost of 2 percent of the face value would be required in addition to the discount of $10. Preferred Stock: The firm has determined it can issue preferred stock at $65 per share par value. The stock will pay an $8.00 annual dividend. The flotation cost stock is $7 per share. Common Stock: The firm's common stock is currently selling for $50 per share. The dividend expected to be paid at the end of the coming year is $5.07. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $3.45. a new common stock issue must be underpriced at $1 per share and the firm must pay $3 per share in flotation costs.

The firm pays 20 percent taxes on ordinary income and capital gains. Sanad invests $7,000 in NWC that will be recovered at the final year of the project.

Calculate the incremental after-tax cash flow for years t = 2 through t = 4.

Calculate the terminal cash flow, if you know that the existing machine was fully depreciated and sold at $40,000, while the proposed machine sold at $190,000 after 4 years from the date of purchase.

Calculate the firm's weighted average cost of capital assuming the firm has exhausted all retained earnings.

Calculate the cost of debt

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