$$ Victor Alexander owns Prospect Manufacturing, Inc.

$$ Prospect is a C corporation, which is currently taxed at $21\%$ for Federal taxes.

$$ Prospect previously issued $$1,000$ par value corporate bonds that pays $6\%$ annual interest.

$$ The corporate bonds have $12$ years until their maturity.

$$ The current market price for the corporate bonds is $$935.$

$$ Prospect previously issued $$70$ par value preferred stock that pays $9\%$ annual dividends.

$$ When the preferred stock was issued, it cost $$2\mathrm{.}50$ per share to issue and sell.

$$ The current market price for the common stock is $$47$ per share.

$$ Prospect recently paid a dividend of $$3\mathrm{.}27$ per share to the common stockholders.

$$ Prospect has historically been increasing the dividends it pays by $7\%$ annually.

$$ The current capital structure of the business is $25\%$ long$-$term debt, $15\%$ preferred stock, and $60\%$

common stock equity.

$$ Victor is considering purchasing new equipment for Prospect$$s factory and has identified four

mutually exclusive investment opportunities, which have the following estimated cash flows:

Project A Project B Project C Project D

Investment $(37,500)(75,000)(100,000)(100,000)$

Year $112,50019,00040,00025,000$

Year $212,50021,00035,00025,000$

Year $312,50022,00030,00035,000$

Year $412,50020,00020,00030,000$

Year $512,50018,00020,00030,000$

Part $1$ Using Excel Formulas to Calculate the Weighted Average Cost of Capital

$1.$ Calculate Prospect$$s cost of long$-$term debt $($yield$-$to$-$maturity$).$

$2.$ Calculate Prospect$$s after$-$tax cost of long$-$term debt.

$3.$ Calculate Prospect$$s cost of preferred stock.

$4.$ Calculate Prospect$$s cost of common stock equity $($constant$-$growth valuation model$).$

$5.$ Calculate Prospect$$s weighted average cost of capital.

Part $2$ Using Excel Formulas to Evaluate Investment Opportunities

$1.$ For each project, calculate the net cash flows?

$2.$ For each project, calculate the net present value?

$3.$ For each project, calculate the internal rate of return?

$4.$ Which project would you recommend be accepted?

$5.$ Explain why you chose to accept the project you did.