Kevin Engineering (KE) has the following capital structure, which it considers to be optimal:

DEBT 25%

PREFERRED STOCK 15%

COMMON EQUITY 60%

100%

KE expected net income this year is RM34,285.72: Its established dividend payout ratio is 30%: its tax rate is 40% and investors expect earnings and dividends to grow at a constant rate of 9% in the future.

KE paid a dividend of RM3.60 per share last year, and its stock currently sells at a price of RM60 per share.

KE can obtain new capital in the following ways:

Common New common stock has a floatation cost of 10% for up to RM12000 of new stock and 20% for all common over RM12000

Preferred - New preferred stock with a dividend of RM11 can be sold to the public at a price of RM100 per share. However, floatation costs of RM5 per share will be incurred for up to RM7500 of preferred, and floatation costs will rise to RM10 per share or 10%, on all preferred over RM7,500.

Debt Up to RM5000 of debt can be sold at an interest rate of 12%, debt in the range of RM5001 to RM10000 must carry an interest rate of 14%, and all debt over RM10000 will have an interest rate of 16%.

Project	Cost (RM)	IRR (%)
A	10000	17.4
B	20000	16.0
C	10000	14.2
D	20000	13.7
E	10000	12.0

a. Find the break points (total financing from all sources) in the MCC (marginal cost of capital) schedule

b. Determine the cost of each capital structure component

c. Calculate the weighted average cost of capital in the interval between each break in the MCC schedule

d. Which of the projects should KE accept?