Use the following to answer questions 1-6

Javi's Yoga on the Beach has the following optimal capital structure: 50% debt, 20% preferred stock, and 30% common equity. They are in the 35% tax bracket. The company has a credit line with a bank up to $1,000,000 at 6%. Amounts borrowed above $1,000,000 are at an interest rate of 7%. Preferred stock has a market price of $25/share, pays dividends of $3 per share and has a flotation cost of $3/share. The cost of common equity is 14% and the cost of issuing new common stock is 15%. The firm has $1,350,000 in retained earnings.

1. What is the firm's after tax cost of debt if they borrow $800,000?

A) 3.9 %

B) 2.1%

C) 6%

D) 6.5%

2. What is the firm's WACC if it finances with retained earnings and borrows less than or equal to $1,000,000?

A) 7.67%

B) 6.72%

C) 8.87%

D) 2.56%

3. What is the firm's cost of preferred stock?

A) 13.6%

B) 12%

C) 10.7%

D) 8.3%

4. What is the firm's WACC if it finances by issuing new common stock and borrows $1.5 million?

A) 9.17%

B) 9.5%

C) 10.2%

D) 8.87%

5. Suppose Javis Yoga on the Beach has decided to build an indoor workout facility for rainy days. They need $4,100,000 for the expansion. What is the MCC of the project?

A) 8.87%

B) 9.2%

C) 9.9%

D) 14%

6. What is the firm's equity break point?

A) $1,350,000

B) $2,000,000

C) $4,000,000

D) $4,500,000