WILT WWWLWPUNTV Winter Business Solutions (WBS) transforms manual accounting and inventory systems into computerized, more efficient, systems. Many of their customers describe the transition as an overnight evolution from the dark ages to the 21" century. Manual systems are far too cumbersome with respects to both time and inventory control. WBS's computerized inventory systems, for example, allow every item in inventory, no matter how small, to be tracked at all points throughout the production process. Replenishing stock becomes an automatic process because the WBS system alerts the manager when supplies reach a pre-programmed level. Mehwish Rehman has been a financial analyst with WBS for over five years. Although she normally does not get involved with sales, her most recent assignment was to assist Junaid Khan, a new sales representative. Junaid is in the process of trying to sell a WBS system to E-Tex Enterprises, a firm that does not know how to determine accurately its weighted average cost of capital (WACC). E-Tex Enterprises, therefore, cannot determine whether the nct prescnt value (NPV) of the WBS system is positive or negative To calculate E-Tex's WACC. Mehwish first needed to gather information on the firm's cost of raising funds from various sources. As she proceeded with the analysis, she learned that E-Tex Enterprises could issue 20-year corporate bonds at a coupon rate of 9%. As a result of current interest rates, the bonds could be sold for Rs.1,005 cach. These bonds have floatation costs of Rs.35 per bond, pay interest semi- annually. and have a par value of Rs.1,000 with cost of long term debt 4.667% (semi-annual). A corporate tax rate of 40% applies. E-Tex can raise additional funds through new issues of common stock. Their common stock is currently selling for Rs.68.25 per share. The most recent dividend paid was in the amount of Rs.2.25. E-Tex's dividends grown at a rate of 10%. If the firm wanted to sell new shares of common stock, after under- pricing and floatation costs, they could do so for Rs.62.75 per share. A final source from which funds could be raised is via preferred stock. Rs.100-par preferred stock can be issued at an 11% annual dividend rate. After floatation costs, the preferred stock would sell for Rs.95.50 per share