GenTech BioTech Incorporated is planning a large biotechnological expansion program during the coming year and its capital budget for this future project is estimated at $$180$ million. The expected yield of the project $16$ percent. No other projects are under consideration. GenTech wants to raise the funds for this future project in accordance with the firm$$s optimal target capital structure:

Market Values Debt $30\%$

Preferred stock $20\%$

Common equity $50\%$

GenTech expects net earnings available to common shareholders this year of $$80$ million, and the firm$$s dividend payout ratio will remain at $30$ percent. The company has a marginal tax rate of $25$ percent.

External Sources of Funds:

Debt: Up to $$120,000,000$ can be issued at an $11$ percent interest rate and no flotation costs. Above that amount, the interest rate will be $14$ percent.

Preferred: Up to $$150,000,000$ can be sold at par value $($$$60)$ to yield the investor $12$ percent. Flotation costs are $4$ percent on the first $$150$ million, then flotation costs increase to $6$ percent.

Common: Current market price is $$18$ per share. The last dividend was $$1\mathrm{.}50$ and the expected growth rate is $12$ percent. Flotation costs are $8$ percent.

As one of the deputies to the Chief Financial Officer of GenTech, should the expansion program be undertaken?