Question 100 pts Notes: All work with methodology and equations used must be shown in detail. A timeline is requested, wherever appropriate. Please do not attempt to show work by providing calculator steps. The actual equations and careful explanations are required to receive credit for answers, even if correct. Correct answers without proper work shown in enough detail will be marked wrong. Incorrect answers with proper work and method outlined will be graded positively with partial credit. 1. (50 points). COST OF CAPITAL Freakishly Fancy Inc. is trying to estimate their cost of capital. Please see the following information: The firm has a marginal tax rate of 30%. Currently, the firm's 8% semiannual bonds have 12 years remaining to maturity and are selling for $748.99. FF's 100 par value 10% preferred stock (annual dividends) is selling at $108.00, FF's common stock is $80 per share and it's last dividend was $7.62. Dividends are expected to grow at a constant rate of 5 % forever. You also know that the beta for the firm is 2.2. that the yield on T-bills is 4%, and that the market risk premium is 5%. When the company uses a bond-yield-plus-risk-premium approach, it uses a 2.64 percent risk premium. For the firm to issue new common stock, it will incur flotation costs of 15% percent. The firm's capital structure is: 40% debt, 10% preferred stock, and 50% equity. Finally, the firm currently has $1 million in the retained earnings account. You are asked to provide the following, showing all work: 1. Calculate the firm's component costs of debt and of preferred stock. 2. The form is considering investing in one 3-year project, Project C, which has an initial cost of $80 and which is projected to pay 3 annual cash flows of $30 each, at the end of each year. Find the NPV of Project C. Show all work. Question 100 pts Notes: All work with methodology and equations used must be shown in detail. A timeline is requested, wherever appropriate. Please do not attempt to show work by providing calculator steps. The actual equations and careful explanations are required to receive credit for answers, even if correct. Correct answers without proper work shown in enough detail will be marked wrong. Incorrect answers with proper work and method outlined will be graded positively with partial credit. 1. (50 points). COST OF CAPITAL Freakishly Fancy Inc. is trying to estimate their cost of capital. Please see the following information: The firm has a marginal tax rate of 30%. Currently, the firm's 8% semiannual bonds have 12 years remaining to maturity and are selling for $748.99. FF's 100 par value 10% preferred stock (annual dividends) is selling at $108.00, FF's common stock is $80 per share and it's last dividend was $7.62. Dividends are expected to grow at a constant rate of 5 % forever. You also know that the beta for the firm is 2.2. that the yield on T-bills is 4%, and that the market risk premium is 5%. When the company uses a bond-yield-plus-risk-premium approach, it uses a 2.64 percent risk premium. For the firm to issue new common stock, it will incur flotation costs of 15% percent. The firm's capital structure is: 40% debt, 10% preferred stock, and 50% equity. Finally, the firm currently has $1 million in the retained earnings account. You are asked to provide the following, showing all work: 1. Calculate the firm's component costs of debt and of preferred stock. 2. The form is considering investing in one 3-year project, Project C, which has an initial cost of $80 and which is projected to pay 3 annual cash flows of $30 each, at the end of each year. Find the NPV of Project C. Show all work