AMG needs to finance a new 70,000 investment opportunity. 30 percent will be raised by issuing a new 5-year bond and the remaining amount by issuing common stock. AMG has outstanding a 5-year 4.00 percent coupon bond that yields 4.00 percent. T-bills yield 0.5 percent, the market risk premium is 5.5 percent and the firms beta is 1.4. The applicable tax rate is 35 percent.

a. The annual coupon payment on the bonds reduces the firms taxes by what dollar amount?

b. What is the firms after-tax cost of debt?

c. What is the firms cost of equity capital?

d. If the after-tax cost of debt is 3 percent and the cost of equity is 8 percent calculate the WACC