Kimberly-Clark has an opportunity to invest $500,000 today in a new project that will generate positive free cash flows for five years.The free cash flows will be $100,000 per year for the first three years, then $250,000 per year for the final two years. K-C maintains 40% debt, 50% common equity, and 10% preferred stock, with total assets valued at $100 million. The company also has a marginal tax rate of 21%.

a.Currently K-C bonds sell for $1,050.They have five years to maturity and a 10% coupon rate, and $1,000 par value.The bond makes semi-annual coupon payments.What is the before-tax cost of debt for K-C?

b.Currently, the 5-year U.S. T-bond has a 2.5% yield, and the required return on the market is 10%.Given a beta for K-C stock of 1.1, what cost of equity is implied by the CAPM?

c.The preferred stock of K-C sells for $50.The next dividend is expected to be $4.50.What is the cost of preferred stock?

d.What is the WACC for K-C?What would be the financial impact to K-C if it can lower its cost of capital by 2%?

e.Should K-C accept this project?Why? Justify your answer.