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SECTION 1 Max Laboratories Inc. has been operating for over thirty years producing medications and food for pets and farm animals. Due to new growth opportunities they are interested in your expert opinion on a series of issues described below The firm has a target capital structure of pervenil debt and 60 percent comme equity, which the CFO comaders to be the optimal capital structure and plans to maintain it in the future Neu you the fimm forecasts Faming per shure (EPS) of $15. Mo Labs las One million common shares outstanding Note: le other words, the fire Nedale $15.000.000 e 315 * 1,000,000 as - 315 Million Nedeco The firm us a line of credit at the local bunk at the following interest rates Can bomow up to 56,000,000 at an 8% interest rate the male poes to 10 for amounts above 56.000.000 The firm's interest Mobiy texnate is 25 percent 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 sturcholders next year Note: Thir mens het out of the 515.000.000 Geet inc. $105 m.in goro Resid Karning (515 w 70%) and the Delovi Didend will be $450 million 815 million X Currently common shares selt for $10 and the expected carings growth is 95. The flotation costo nise new comme equity capital, equal 7% of the share price 3. Calculate the Weighted average cost of capital at all the break points found on Question 2 above. Show the three amounts of capital that trigger each WACC. A) Before the firm has to issue new debt B) With the highest cost of debt but before the firm has to issue new equity. C) With New cost of equity and at the most expensive cost of debt. SECTION 2

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