Chapter 21 Problem Set—Do Problems 1, 2, and 3 on pages 428–429 of the textbook.Chapter 22 Problem Set—Do Problems 1, 3, 4, 5, 7, 10, and 11 on 465–469 of the textbook Chapter 25 Problem Set—Do Problems 5, 6, and 14 on pages 558–561 of the textbook.Chapter 26 Problem Set—Do Problems 3, 6, 8, 11, and 12 on pages 585–586 of the textbook.Chapter 21, Problem 1.HBM, Inc. has the following capital structure: Assets $400,000 Debt $140,000 Preferred stock 20,000 Common stock 240,000 The common stock is currently selling for $15 a share, pays a cash divi dend of $0.75 per share, and is growing annually at 6 percent. The pre ferred stock pays a $9 cash dividend and currently sells for $91 a share. The debt pays interest of 8.5 percent annually, and the firm is in the 30 percent marginal tax bracket.a. What is the after-tax cost of debt?b. What is the cost of preferred stock?c. What is the cost of common stock?d. What is the firm’s weighted-average cost of capital?Chapter 21, Problem 2.Sun Instruments expects to issue new stock at $34 a share with estimated flotation costs of 7 percent of the market price. The company currently pays a $2.10 cash dividend and has a 6 percent growth rate. What are the costs of retained earnings and new common stock?Chapter 21, Problem 3.A firm’s current balance sheet is as follows:Assets $100Debt $10Equity $90a. What is the firm’s weighted-average cost of capital at various combinations of debt and equity, given the following information? b. Construct a pro forma balance sheet that indicates the firm’s optimal capital structure. Compare this balance sheet with the firm’s current balance sheet. What course of action should the firm take?Assets $100Debt ?Equity ?c. As a firm initially substitutes debt for equity financing, what happens to the cost of capital, and why?d. If a firm uses too much debt financing, why does the cost of capital rise?Chapter 22, Problem 1.An investment costs $23,958 and will generate cash flow of $6,000 annually for five years. The firm’s cost of capital is 10 percent.a. What is the investment’s internal rate of return? Based on the internal rate of return, should the firm make the investment?b. What is the investment’s net present value? Based on the net present value, should the firm make the investment?

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