Please do Question A on down.

Given Information
P0		$40.00
Net Ppf		$10.00
Dpf		$2.50
D0		$1.75
g		8%
B-T rd		9%
Skye's beta		1.25%
Market risk premium, RPM		7.0%
Risk free rate, rRF		5.0%
Target capital structure from debt		45%
Target capital structure from preferred stock		5%
Target capital structure from common stock		50%
Tax rate		30%
Flotation cost for common		10%
A.) Calculate the cost the after-tax cost of debt, the cost of preferred stock (including flotation costs), and the cost of equity (ignoring flotation costs).
Cost of debt:
B-T rd	(1 T) =		A-T rd
9%	(1-30%)	=	2.70%
Cost of preferred stock (including flotation costs):
Dpf /	NetPpf =		rpf
$2.50	$10.00	=	0.25%
Cost of common equity, CAPM:
rRF +	b RPM	=	rs
5.0%	7%*1.25%	=	0.02%
B.) Assuming that RK Enterprises Inc will not issue any new equity and will continue to the following capital structure, what is the company's WACC?
wd	45.0%
wpf	5.0%
ws	50.0%
	100.0%
wd A-T rd +	wpf rpf +	ws rs	=	WACC
45.0%*2.70%	5.0%*0.25%	50%*0.02	=	1.23%
C.) Suppose RK Enterprises Inc., is evaluating three projects with the following information.
(1) Each project has a cost of $1 million. They will all be financed using the target mix of long-term debt, preferred
stock, and common equity. The cost of the common equity for each project should be based on the beta estimated for
the project. All equity will come from reinvested earnings.
(2) Equity invested in Project A would have a beta of 1.0. The project has an expected return of 10.0%.
(3) Equity invested in Project B would have a beta of 1.5. The project has an expected return of 12.0%.
(4) Equity invested in Project C would have a beta of 2.0. The project has an expected return of 13.0%.
******* Analyze the companys situation and explain why each project should be accepted or rejected.
	Beta	rs	rps	rd(1 T)	WACC	Expected return on project
Project A	1.0	10.00%	0.25%	0.81%	1.23%
Project B	1.5	12.00%	0.25%	0.81%	1.23%
Project C	2.0	13.00%	0.25%	0.81%	1.23%