Complete a financial analysis for Ryan-Key Inc. RK is considering expanding. RK invested $200,000 in a study to see if t

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Complete a financial analysis for Ryan-Key Inc. RK is
considering expanding. RK invested $200,000 in a study to see if
this expansion was possible. Below are two options for the
expansion.
Option A:
Expected Revenues and Operating Costs- Option
A
Year
Revenue
Operating Costs
2021
$1,100,000
$510,000
2022
$1,200,000
$530,000
2023
$1,300,000
$560,000
2024
$1,350,000
$570,000
2025
$1,250,000
$585,000
2026
$1,150,000
$595,000
2027
$1,050,000
$600,000
Option B:
Expected Revenues and
Operating Costs – Option B
Year
Revenue
Operating Costs
2021
$1,700,000
$380,000
2022
$1,875,000
$390,000
2023
$1,975,000
$400,000
2024
$2,075,000
$410,000
2025
$2,150,000
$420,000
2026
$2,000,000
$420,000
2027
$1,800,000
$425,000
RK’s capital structure:
Component
Description
Long-term Debt
$1000 par, 9% coupon bonds with 16 years until maturity. 10,000
bonds outstanding. Current market price of $1050.00.
Your investment bankers estimate that, at your investors’
current required rate of return, new bonds could be sold at par
minus 5% flotation costs.
Preferred Stock
$100 par, 11% dividend preferred stock, currently selling for
$110.00. 16,000 shares outstanding.
Your investment bankers estimate that ETMC could issue new
preferred stock at par at your investors’ current required rate of
return, but with a $2 per share discount and $3.75 per share
flotation costs.
Common Stock
200,000 outstanding shares, with a book value of $46 per share
and a $68.00 current market price per share. Dividend history shown
below.
Your investment bankers estimate that you could issue additional
common stock shares with $2 per share underpricing and with
flotation costs of $5.00 per share.
Year
Dividend
2020
$3.95
2019
$3.76
2018
$3.58
2017
$3.41
2016
$3.25
If RK chooses not to expand, it can sell the proposed
expansion site for $500,000.