a. Calculate the cost of each capltal component, that is, the after-tax cost of debt, the cost of preferred stock fincluding flotation costs), and the cost of equity (ignoring flotation costs). Use both the the CAPM method and the dividend grown approsch to find the cost of equily. Cost of common equify, dildend arowth approach fignoring flotation costy: : MPORTANT NOTE: HERE THE CAPM AND THE DNIDEND GROWTH METHOOS PRODUCE APPROXIMATELY THE SAME COST OF EQUTY. THAT OCCURRED BECAUSE WE USED A BETA IN THE PROBLEM THAT FORCED THE SAME RESULT, ORDINARIL.Y, THE TWO METHODS WILL PRODUCE SOMEWHAT DIFFERENT RESULTS. c. What is the cost of new common steck based on the CAPMY (Hint: Find the datference between r, and r, as determined by the dividend growth approach and add that differential to the CAPM value for rH ) Agaln, we would not normally find that the CAPM and divldend growth methods yleid identical rosults. d. Astuming that Gao will not issue new equity and will continue to use the same capital structure, what is the company/s WACC? 6. Suppose Gao is evaluating three projects with the following characteristics: (1) Each project has a cost of $1 million. They will all be financed using the target mix of long-term debt, preferred stock, and common equily. The cost of the common equity for each project should be based on the beta estimated for the project. All equity will come from reinvested earnings. (2) Equity invested in Project A would have a beta of 0.5. The project has an expected return of 9.0%. (3) Equily invested in Project B would have a bota of 1.0. The project has an expected roturn of 10.0%. (4) Equity invested in Project C would have a beta of 2.0. The project has an expected return of 11.0%. Analyze the company's situation and explain why each project should be acoepted or relected. The expected returns on Projects A and B both exceod their risk-adiusted WACCs, so they should be accepted. However, Project Cls WACC exceods its expectod rate of return, so it should be relected