1. (30 points) A firm has as its target capital structure 40% equity and 60% bonds. The firm does not use any preferred stock. The firm paid a dividend this year (Do) of $1.10 and the firm expects dividends to grow at 6% per year. Po is $11.00. The firm has a bond with a coupon rate of 10% annual interest, five years left to mature, and is currently selling in the market at $1,025. The firm's tax rate is 30%. What is the firm's cost of capital?