ASSIGNMENTS

1. Submit Problems 11-6 (10 points), 11-A (10 points), and 11-B (5 points).

Note: Problems 11A and 11B are assigned because the Comprehensive Capital Budgeting Project requires the determination of the optimal capital budget. Instructions for Problems 11A and 11B are below.

2. Prepare for financial performance presentations.

Problem 11A: Optimal Capital Budget: The management of Flannigan Phosphate Industries (FPI) is planning next year's capital budget. FPI projects its net income at $7,500, and its payout ratio is 40 percent. Depreciation is forecasted at $3,000. The company's earnings and dividends are growing at constant rate of 5 percent; the last Dividend, D0, was $0.90; and the current stock price is $8.59. FPI's new debt will cost 14 percent. If FPI issues new common stock, flotation casts will be 20 percent. FPI is at its optimal capital structure, which is 40 percent debt to 60 percent equity, and the firm's marginal tax rate is 40 percent. FPI has the following independent, indivisible, and equally risky investment opportunities:

Project

Cost

IRR

A $15,000 17%

B $20,000 14%

C $15,000 16%

D $12, 000 15%

What is FPI's optimal capital budget?

Must calculate 11A

WACC1 and WACC2 to be calculated

Need to graph IOS and MCC schedule to find the optimal cost of the budget. Must provide a graph as part of the answer as well.