What are Print-to-Fit's (a) weighted average cost of capital, and (b) required return on equity capital?

In previous conversations with Print- to-Fit's Board, she learned that the firm would probably be receptive to a stock-for-stock exchange. In addition, she felt that Print-to-Fit's shareholders would be willing to accept around 250,000 shares of C. J. Nickel's common stock, currently worth $81.32 per share, to tender their Print-to-Fit common stock-lock, stock, and bubble-jets-to Nickel's. TABLE 1 Print-to-Fit, Inc. Statement of Revenue and Expense December 31, 1993 ($000s) Actual -Projected- 1993 1994 1995 1996 1997 Net sales revenue $9,194.0 $13,892.0 $17,859.3 $18,220.9 $21,592.4 Less: Cost of goods sold (5,184.2) (8,107.0) (1 1,145.8) (10.680.2) (12,778.7) Gross profit $4,009.8 $5,785.0 $6,713.5 $7,540.7 $8,813.7 Less: Operating expenses ($1,400.4) ($2,670.9) ($4,100.9) ($4,539.1) ($5,563.3) Depreciation expense (12.7) (85.8) (132.4) (178.3) (245.8) Net operating income $2,596.7 $3,028.3 $2,480.2 $2,823.3 $3,004.6 Plus: Nonoperating income $44.7 $113.0 $52.8 $243.3 $147.5 Earnings before interest and taxes $2,641.4 $3,141.3 $2,533.0 $3,066.6 $3,152.1 Less: Interest expense ($29.8) ($80.0) ($227.6) ($158.8) ($203.6) Earnings before tax $2,611.6 $3,061.3 $2,305.4 $2,907.8 $2,948.5 Less: Income tax expense: Current income tax expense ($1,338.0) ($1,535.0) ($987.2) ($1,197.7) ($1,1 12.8) Deferred income tax expense (47.8) (125.7) (51.6) (39.9) (42.5) Total income tax expense ($1,385.8) ($1.660.7) ($1,038.8) ($1.237.6) ($1.155.3) Net income $1,225.8 $1,400.6 $1,266.6 $1.670.2 $1,793.2 Print-to-Fit, Inc. Statement of Financial Condition December 31, 1993 ($OOOs) Actual ---Projected-- 1993 1994 1995 1996 1997 ASSETS Current assets: Cash and marketable securities $660.8 $601.7 $993.5 $1,714.2 $2,271.4 Accounts receivable (net) 1,200. 2,046.8 2,762.0 2,893.6 3,912.9 Inventory 1225.2 2,409.0 3,019.2 2,769.1 3,672.3 Prepaid expenses 23.2 108.2 99 0 117.3 123.3 Current assets - other 262.9 348.4 316.7 Total current assets $3,165.8 $5,361.0 $7,136.6 $7,842.6 $10,296.6 Long-term investments: Plant and equipment (gross) $1,030.6 $2,661.7 $2,756.5 $2,764.7 $2,638.6 Less: Accumulated depreciation (19.8) (89.7) (184.2) (305.4) (490.2) Plant and equipment (net) 1,010.8 2,572.0 2.572.3 2.459.3 2,148.4 Other assets 227.0 750.6 925.5 1,367.8 1.601.3 Total long-term investments 1,237.8 $3,322.6 $3,497.8 $3,827.1 $3,749.7 Total assets $4,403.6 $8,683.6 $10,634.4 $11,669.7 $14,046.3 LIABILITIES AND EQUITY Current liabilities: Accounts payable $843.5 $1,750.7 $1,371.3 $1,483.6 $1,660.6 Income taxes payable 343.8 382.7 346.3 438.3 490.7 Accrued expenses 0.0 0.0 849 85.4 85.8 Current debt obligations 221.3 $50.2 756.1 22.5 700.7 Total current liabilities $1,408.6 $2,683.6 $2,558.6 $2,029.8 $2,937.8 Long-term liabilities: Nonconvertible debt $0.0 $105.7 $1,112.6 $1,085.7 $1,051.8 Capitalized leases 6. 20.4 14.0 23.3 19.8 Deferred tax liability 124 26.2 42.2 87.9 69.6 Total long-term liabilities $19.0 $152.3 $1,168.8 $1,196.9 $1,141.2 Shareholders' equity: Common stock - par value $5.3 $11.3 $11.3 $11.4 $11.4 Additional paid-in capital 1,194.3 2,659.4 2,452.1 2,317.8 2,171.9 Retained earnings 1.776.4 3.177. 4,443.6 6.113.8 7,784.0 Total shareholders' equity $2,976.0 $5,847.7 $6,907.0 $8,443.0 $9,967.3 Total liabilities and shareholders' equity $4,403.6 $8,683.6 $10,634.4 $11,669.7 $14,046.3 TABLE 3 Print-to-Fit, Inc. Capitalization Summary December 31, 1993 Short-Term Long-Term Common Liabilities" Debt Stock Optimal capital structure 20% 10% 70% Current capital cost (before-tax) 7% 10% 14% Shares outstanding 50,000,000 Corporate tax rate 37% 37% Note: Short-term liabilities include accounts payable, income taxes payable, accrued expenses, and current debt obligations. Only 50 percent of total short-term liabilities-representing current debt obligations-carry an explicit financing charge