Attraction Ltd. is currently evaluating its options for raising financing for a new project. Its stock currently sells for $27 per share and its last dividend was $2.20 per share. It expects its earnings and dividends to continue to grow at a constant rate of 7% and its current tax rate is 30%. Attraction believes it can raise new debt at an interest rate of 11%, and preferred stock offering a dividend of $6 per share can be sold for $45 per share. Attractions capital structure consists of 60% debt, 35% equity, and 5% preferred stock.

(a) Determine the cost of each capital structure component (3 marks

(b) Calculate the weighted average cost of capital (WACC) (5 marks)

(c) The company is considering the following investment opportunities.

If the projects are independent, which should it choose? (2 marks)

Project	Investment	Rate of Return (%)
A	2,000,000	14.35
B	1,350,000	11.05
C	1,550,000	13.62
D	2,500,000	10.95
E	1,750,000	9.00