YouWork is financed with 40% debt, 50% equity, and 10% preferred stocks. YouWork's current dividend is $4 and it is expected to grow at a rate of 4% each year. The stock price for YouWork is $40. YouWork has $400 million in retained earnings that can be used as a source of internal equity financing. Any equity capital of more than $400 million needs to be sourced with the issuance of external equity at net proceeds of $38. YouWork can borrow up to $300 million from a local bank at the before-tax rate of 7%. To raise more debt, YouWork has to issue a 10-year bond with a coupon rate of 8% at net proceeds of $920 per $1,000 face value. YouWork's preferred stock pays a constant dividend of $3 and is priced at $31. YouWork's preferred stock has a $1 issuance cost. Lastly, YouWork's tax rate is 35%.
YouWork has the following projects available to invest in Project 1 for $150 million with an IRR of 14%.
Project 2 for $400 million with an IRR of 12%.
Project 3 for $220 million with an IRR of 10.75%.
Project 4 for $300 million with an IRR of 10.50%.
Project 5 for $200 million with an IRR of 9%.
Which of these projects should YouWork invest in?