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, 0.08 bond for $1100. 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 $60 per share par value. The stock will pay an $ 8 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 $55 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.

Answer for part 11