2. (20 points) Jericho Snacks has 80,000 shares of common stock outstanding at a market price of $40 a share, and the stock's beta is 1.23. This stock just paid an annual dividend of $2.5 a share. The dividend is expected to increase by 5 percent annually. The risk-free rate is 3% and the market risk premium is 8%. The firm also has $1 million preferred stock with 12% annual dividend. The tax rate is 33 percent. 1) The company currently has no debt. What is the cost of equity for this firm if using the Dividend Growth Model? What should be the cost of equity if using the CAPM (i.e., SML)? 2) Still assume there is no debt. What is the total firm value? Using the average of two estimates calculated in part 1) to represent the cost of equity, what is the firm's weighted average cost of capital (WACC)? 3) Now, the company is planning to borrow $1 million debt at 7% interest rate to replace its $1 million preferred stock. After this transaction, what will be the firm value? What will be the cost of equity? And what will be the WACC