Intel has determined its optimal capital structure, which is composed of the following sources and target market value proportions:

Debt: The firm can sell a 25 year, $1,000 par value, 0.07 bond for $1150. A flotation cost of 2 percent of the face value would be required.

Preferred Stock: The firm has determined it can issue preferred stock at $70 per share par value. The stock will pay an $ 7 annual dividend. The cost of issuing and selling the stock is $3 per share.

Common Stock: The firm's common stock is currently selling for $40 per share. The dividend expected to be paid at the end of the coming year is $6. Its dividend payments have been growing at a constant rate 5 percent. It is expected that to sell, a new common stock issue must be underpriced at $1 per share and the firm must pay $1 per share in flotation costs. Additionally, the firm's marginal tax rate is 40 percent.

Intel is considering making a new investment of $ 3000 in a new chip producing facility and has come with the following estimated operating cash flows $ 1500 per year. The project will end after four years.

The before tax cost of debt is:

Answer for part 1 The firm's after tax cost of debt is:

Answer for part 2 The cost of preferred stock is:

Answer for part 3 The cost of retained earnings is:

Answer for part 4 The cost of new issuance of common stocks is:

Answer for part 5 Assuming Intel plans to pay out all of its earnings as dividends, the weighted average cost of capital is:

Answer for part 6 The payback period of the project is:

Answer for part 7 The Net Present value of the project is:

Answer for part 8 According to NPV, should Intel accept the project?

If yes write down number 1 if not write down number 2.

Answer for part 9 The profitability index of the project is:

Answer for part 10 According to Profitability index should Intel accept the project?

If yes write down number 1 if not write down number 2

\begin{tabular}{lc} Source of Capital & TargetMarketProportions \\ \hline Long-term debt & 20% \\ Preferred stock & 10 \\ Common stock equity & 70 \\ \hline \end{tabular}