2. A firm is financed with 40% risk-free debt and 60% equity. The risk-free rate is 7%, the firm's cost of equity capital is 18%, and the firm's marginal tax rate is 35%. The firm's payout ratio is 50% and investors value imputation credits at 60% of face value. Earnings are fully taxed. What is the firm's weighted average cost of capital calculated using the effective tax rate under imputation?

Select one:

a. 18.00%

b. 7.00%

c. 12.91%

d. 12.62%

e. None of the above

3. A project costs $15 million and is expected to produce cash flows of $3 million a year for 10 years. The opportunity cost of capital is 14%. If the firm has to issue stock to undertake the project and issue costs are $500,000, what is the project's APV? Annuity factor(i=14%, n=10)=5.2161