I need part E completed. I have included the question/solution for part C to aid in part E's answer. Please show work and I will give a thumbs up!

TABLE 3

Financing Cost Data

Long-term debt: The firm can raise $700,000 of additional debt by selling 10-year, $1,000, 12% annual interest rate bonds to net $970 after flotation costs. Any debt in excess of $700,000 will have a before-tax cost, rd, of 18%.

Preferred stock: Preferred stock, regardless of the amount sold, can be issued with a $60 par value and a 17% annual dividend rate. It will net $57 per share after flotation costs.

Common stock equity: The firm expects its dividends and earnings to continue to grow at a constant rate of 15% per year. The firms stock is currently selling for $20 per share. The firm expects to have $1,300,000 of available retained earnings. Once the retained earnings have been exhausted, the firm can raise additional funds by selling new common stock, netting $16 per share after underpricing and flotation costs. TO DO

Source of capital

Range of new financing

After-tax cost (%)

Long-term debt

$0$700,000

_________

$700,000 and above

_________

Preferred stock

$0 and above

_________

Common stock equity

$0$1,300,000

_________

$1,300,000 and above

_________ c. (1) Sort the investment opportunities described in Table 2 from highest to lowest return, and plot a line on the graph you drew in part (3) above showing how much money is required to fund the investments, starting with the highest return and going to the lowest. In other words, this line will plot the relationship between the IRR on the firms investments and the total financing required to undertake those investments. (2) Which, if any, of the available investments would you recommend that the firm accept? Explain your answer.

ANSWERS FOR PART C:

Calculations:

A	21%	$400,000	$393,120.39
B	19%	$200,000	$196,882.69
C	24%	$700,000	$686,274.51
D	27%	$500,000	$488,997.56
E	18%	$300,000	$295,566.50
F	22%	$600,000	$589,198.04
G	17%	$500,000	$493,015.61

The best investment would be investment would be C because it offers the highest return for the project.

e. (1) What type of dividend policy does the firm appear to employ? Does it seem appropriate given the firms recent growth in sales and profits and given its current investment opportunities? (2) Would you recommend an alternative dividend policy? Explain. How would this policy affect the investments recommended in part c(2)?