Medical Research Corporation i

Medical Research Corporation is expanding its research and production capacity to introduce a new line of products Current plans col for the expenditure of Sic0 million on four projects of equal size (S25 million each, but different returns Project As in blood clotting proteins and has an expected return of 18 percent. Project Brelates to a hepatitis vaccine and carries a potential return of 14 percent Project C. dealing with a cardiovascular compound, is expected to earn 118 percent and Project D. an investment in orthopedic implants, is expected to show a 10.9 percent return The firm has $23,000,000 in retained earnings. After a capital structure with 522,000,000 million in retained earnings is reached (in which retained earnings represent 60 percent of the financing all additional equity financing must come in the form of new common stock. Common stock is seiling for 523 per share and underwriting costs are estimated at 53.3 it new shares are issues. Dividends for the next year will be $0.81 per share (0) and earnings and dividends have grown consistently at 124 percent per year The yield on comparative bonds has been hovering at 11 percent The investment banke feels that the first 518,500,000 or bonds could be sold to yield 11 percent while additional debat might require a 2 percent premium and be sold to yield 13 percent. The corporate tax rate is 30 percent Debt represents 40 percent of the capital structure. a Based on the two sources of financing, what is the initial weighted average cost of capital? Use Kyand kel Found your response to two decmal places

b. At what size capital structure will the firtime un out of retained earnings? Round your response to the nearest whole domat.

c. What will the marginal cost of capital be immediatey aner that point? Found your response to two decimal places.

c. At what size capital structure will there be a change in the cost of debt: Round your response to the nearest whole dolar e. What will the marginal cost of capital be immediate after that point: Round your response to two decimal places.

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