BOE Enterprises has $12,500$ bonds outstanding that have a $7\%$ coupon rate and a $$1,000$ par value. The bonds are selling at a quoted price of $101\mathrm{.}5,$ pay interest semi$-$annually, and mature in $30$ years. There are $500,000$ shares of $5$ percent $$100$ par value preferred stock outstanding with a current market price of $$79$ a share. In addition, there are $1\mathrm{.}60$ million shares of common stock outstanding with a market price of $$34$ a share and a beta of $1\mathrm{.}5.$ These shares were originally sold for $$25$ each. The common shareholders received a dividend of $$1\mathrm{.}35$ per share last year. Based on the last $5$ years growth, the company estimates a growth rate in dividends of $3\%$ forever. The firm's marginal tax rate is $33\%.$

BOE Enterprises is considering a major expansion that would cost $$20$ million for the purchase of new capital equipment. The project is expected to provide cash flows before tax of $$2\mathrm{.}5$ million per year for $18$ years. At the end of $18$ years the machine can be salvaged for $$2\mathrm{.}5$ million. The machine belongs to asset class with a CCA rate of $25\%.$ Assume the class will stay open at the end of the project.

Flotation cost to issue new preferred share is $4\%,$ new debt is $3\%,$ and new common share is $6\%.$ The company considers the current capital structure to be optimal and the risk associated with the expansion is considered to be the same as the company on average. $(35$ Marks$)$

a$.$ Calculate the after$-$tax cost of debt. Use approximation formula and ignore the compounding. Show your work. $(5$ marks$)$

b$.$ Calculate the cost of preferred shares. $(2$ marks$)$

c$.$ Calculate the cost of equity. $(3$ marks$)$

d$.$ Calculate the market value capital structure for the firm. $(4$ marks$)$

e$.$ Calculate the after tax weighted average cost of capital $($WACC$)$ using the market value weighting for the firm. $(2$ marks$)$

f$.$ Calculate the weighted average flotation costs. $(2$ marks$)$

g$.$ Calculate the initial investment $($adjusted$)$ for the expansion project. $(2$ marks$)$

h$.$ Calculate the present value of the after$-$tax operating cash flows. $(4$ marks$)$

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i$.$ Calculate the present value of the tax shield for the project. Use CCA tax shield formula from Finance I course. $(3$ marks$)$

j$.$ Calculate the present value of the terminal cash flows. $(2$ marks$)$

k$.$ Using an NPV analysis, would this expansion create value for BOE Enterprises? $(3$ marks$)$

I. Is BOE Enterprises stock riskier than that of a market portfolio? Why or why not? $(3$ marks$)$