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Q.3 Lancaster Engineering Inc. (LEI) has the following capital structure, which it considers to be optimal: Debt 25% Preferred 15 stock Examiner: Seema Waseem INDUS UNIVERSITY Faculty & Management Sciences (FMS) Department of Business Indus University, Karachi Common 60 equity 100% LEI's expected net income this year is $34,285.72; its established dividend payout ratio is 30%; its federal-plus-state tax rate is 40%; and investors expect future earnings and dividends to grow at a constant rate of 9%. LEI paid a dividend of $3.60 per share last year, and its stock currently sells for $54.00 per share. LEI can obtain new capital in the following ways: Preferred: New preferred stock with a dividend of $11.00 can be sold to the public at a price of $95.00 per share. Debt: Debt can be sold at an interest rate of 12%. a. Determine the cost of each capital component. b. Calculate the WACC. C. LEI has the following investment opportunities that are average-risk projects: Project Cost at t=0 Rate of Return 17.4% 16.0 14.2 A $10,000 B 20,000 10,000 D 20,000 E 10,000 Which projects should LEI accept? Why? 13.7 12.0