S&P Corp(SPC's) optimal capital structure consists of 40 percent debt and 60 percent equity. Given the following information, calculate the marginal cost of capital(MCC) schedule and the optimal capital budget (how much is the optimal capital budget and what is the corporate cost of capital?)

5 years ago the company issued callable bonds that pay semiannual payment with 6.5 percent annual coupon rate and sold them at par value (1,000). However each bond is currently selling at 960, has 25 years remaining to maturity and may be called in year 4 at 1,032.50.

SPC's current stock price is 68.09, its long run growth rate is 4 percent and its expected earnings per share(EPS1) is 4 dollars. The company retains 20 percent of its earnings to fund future growth.

There are 102.5 million common shares outstanding

New common stock may be issued with 5 percent flotation costs.

SPC has the following investment Opportunity Schedule (IOS)

Project A - IRR=15.2 percent cost= 20 million

Project B IRR= 12.5 percent cost= 55 million

Project C IRR= 9 percent cost= 45 million

Project D IRR= 7.5 percent cost= 40 million

Project E IRR= 6 percent cost= 50 million