Vaxipro Inc is considering raising funds to modernize its existing operations. However, they want to maintain their existing capital structure in raising these funds. They have provided us with their most recent financial statements: Extracts Balance Sheet, in thousands of dollars Common stock $185,000 Long Term Debt $120,000 Preferred Shares $ 95,000 Additional information: The company currently has 7.5% coupon, semi-annual payment bonds which were issued at 104.3 percent of par, with 22 years to maturity. A new issue of bonds would attract flotation costs of 6%. The companys common shares that have a book value of $24 per share are currently selling at $19 per share. The companys systematic risk is 1.5 and the current Treasury bill rate is 4.0%. The market rate of return on companies with similar risk characteristics as Vaxipro Inc. is 7%. The companys preferred shares are 6.5%, $100 par preferred shares selling at $83 per share. Preference dividends are paid semi-annually. The companys tax rate is 35%. Required:

a) Calculate Vaxipros after-tax cost of debt. (6 marks)

b) Calculate Vaxipros cost of equity. (5 marks)

c) Calculate Vaxipros cost of preferred shares. (5 marks)

d) Calculate Vaxipros Weighted Average Cost of Capital (8 marks)

e) Based on its capital structure, would you categorize this firm as being highly financially leveraged? What are the pros and cons of financial leverage? (4 marks)

f) Explain why using a firm's WACC is not always appropriate for the evaluation of a new project. (2 marks)