“Part II
The company has the following capital structure:

Account

$

Costs before tax

Long-Term Debt

1,500,000

10%

Preferred Stock

500,000

12%

Common Stock

3,000,000

20%

Calculate the weighted average cost of capital (tax is 40%)
Using the same cash flows in exhibit I find the NPV, PI, IRR and
MIRR (Use your answer on part one as cost of capital). Which project(s) would
you recommend and why?
Part III
Based on the following information and data in part II prepare
Performa income statement. Also, calculate the DOL, DFL, and DTL and earning
per share.
Q=20,000 units
Price=$120
VC=$80
Fixed cost=$450,000
100,000 outstanding shares
Assume that the management has a target DTL of 6. How much debt
needs to be retired (replace by common stocks) in order to achieve that goal?
What would be the new WACC?
Exhibit
Project cash flows in (00)

Project1

Project2

Project3

Project4

Project5

Project6

Project7

Project8

Initial Investment

$2,000

$2,000

$2,000

$2,000

$2,000

$2,000

$2,000

$2,000

Year

1

$330

$1,666

$160

$280

$2,200

$1,200

$(350)

2

$330

$334

$200

$280

$900

$(60)

3

$330

$165

$350

$280

$300

$60

4

$330

$395

$280

$90

$350

5

$330

$432

$280

$70

$700

6

$330

$440

$280

$4,000

$1,200

7

$330

$442

$280

$2,250

8

$1,000

$444

$280

9

$446

$280

$2,000

10

$5,000

$448

$280

11

$450

$280

12

$451

$280

13

$451

$280

14

$452

$280

15

$9,000

$(2,000)

$280

Sum of Cash Flow

Benefits

$3,310

$7,165

$9,000

$3,561

$4,200

$6,200

$4,560

$4,150

Excess of cash flow

Over investment

$1,310

$5,165

$7,000

$1,562

$2,200

$4,200

$2,560

$2,150

Part IIThe company has the following capital structure:Account$Costs before taxLong-Term Debt1,500,00010%Preferred Stock500,00012%Common Stock3,000,00020%Calculate the weighted average cost of capital (tax is 40%)Using the same cash flows in exhibit I find the NPV, PI, IRR and
MIRR (Use your answer on part one as cost of capital). Which project(s) would
you recommend and why?Part IIIBased on the following information and data in part II prepare
Performa income statement. Also, calculate the DOL, DFL, and DTL and earning
per share.Q=20,000 unitsPrice=$120VC=$80Fixed cost=$450,000100,000 outstanding sharesAssume that the management has a target DTL of 6. How much debt
needs to be retired (replace by common stocks) in order to achieve that goal?
What would be the new WACC?Exhibit
Project cash flows in (00)Project1Project2Project3Project4Project5Project6Project7Project8Initial Investment$2,000$2,000$2,000$2,000$2,000$2,000$2,000$2,000Year1$330$1,666$160$280$2,200$1,200$(350)2$330$334$200$280$900$(60)3$330$165$350$280$300$604$330$395$280$90$3505$330$432$280$70$7006$330$440$280$4,000$1,2007$330$442$280$2,2508$1,000$444$2809$446$280$2,00010$5,000$448$28011$450$28012$451$28013$451$28014$452$28015$9,000$(2,000)$280Sum of Cash FlowBenefits$3,310$7,165$9,000$3,561$4,200$6,200$4,560$4,150Excess of cash flowOver investment$1,310$5,165$7,000$1,562$2,200$4,200$2,560$2,150”