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SECTION 1 Mes Laboratories loe has been operating for over thirty years producing medications and food for pets and farm animals. I>uc to sew powth opportunities they are interested in your expert opinion on a series of es described bdes The firm has a target capital structure of 40 percent debt and 60 percent common equity, which the CFO comafers to be the optimal capital structure and plans to maintain it in the future Next year the firm foreca Famings per share (EPS) of $15, Max Lahe has One million common shares outstanding Now Lother words, the firm Note 85.000000 $15.000.000 a $15 Nos come The firm has a line of credit at the local bank of the following interest rate Can bemow up lo 56,000,000 at an 8% interest rate the rate presto 10% for amounts above $6,000,000 The firm'simerest subsidy tax rate is 25 percem The firm plans to retain 20% of the forecasted Net income, the remaining 10% of the estimated profits will be paid as dividends to common shareholders bestyeat. Note This meant Matot of ke 333.000.000 de Not incur 570.5 million go to Mandarin (813 walion X 70%) and the Declared Didende will 5450 million (815 million X Currently common shares sell for S110 and the expected sprowthisThe flotation costs tonise new comme equity capital, equal 7% of the share price Estimate the weighted average costs of capital for Max Laboratories A) After-tax cost of det. B) Cest of equity Con of new equity. 2. Calculate the two Murpinal cost of capital break points show the amount of total capital and how much would be essed from Common Equity and Debt ut each point A) Breakpoint when the firm needs to borrow at the higher cost of debt but still does not need to se new equity 1) Break point when the fire needs to start issuing new equity (has exhausted the retained earnings. Note that this point the firm is already wing the higher cost of debt. 3.Calculate the Weighted average cost of capital at all the break points found on Quote above. Slow the three amounts of capital that trigger each Acc. A) Before the firm has to issue ben debit B) With the bighest cost of debt but before the firm has to issue new equity With New cost of equity and at the most espansive cost of debt. SECTION 2 Max 1.aboratories is valuating there independent projects Project !: Dog Treats, Project 2: Dog Food, and Project) Ty Toys Use the firm's WACC calculated we to value the projet Food Toss Calons Initial lavestment 4.000.000 300.000 4.400,000 1.200.000 2.100,00 1,400.000 1.000.000 WO 1.500.000 1.200.000 1.100.000 MOKE Std. triation of IKH 10- 1294 Calculate in back Prisl. NPV. TRR and MIRR for all projects Which shows the time Explain in detail de som for your recomendon Poremple, if you get a pointive NPV, that personuence on your decision to reject the project being ved! Also what is the criteria for and MERR DO 1.000.000 N%

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