Sharp's Current Capital Structure of 60 Percent Equity, 35 Percent

Sharp's current capital structure of 60 percent equity, 35 percent debt, and 5 percent preferred stock is considered optimal. This year Sharp expects to have earnings after tax of $3.6 million and to pay out $600,000 in dividends. Sharp can also raise up to $2 million in long-term debt at a pretax interest rate of 10.6 percent (all debt over $2 million will cost 11.4% pretax) , and sell preferred stock at a cost of 11.5 percent. Sharp's marginal tax rate is 40 percent. The current value of Sharp's common stock is $36 and a dividend of $2.15 is expected to be paid during the coming year. Dividends have been growing at an annual compound rate of 8 percent a year and are expected to continue growing at that rate. New shares can be sold to net the firm $34.50. Sharp has an opportunity to invest in the following capital projects. Which one(s) should be accepted?

A) 1 and 2
B) 1 and 3
C) 1, 2, and 3
D) cannot be determined from the information provided