Banner Inc. has a cost of equity of 13.6% and a beta of 1.28. The firm is financed with common stock and debt, and has a target D/E ratio of 0.68. The risk-free rate is 3.4% and the tax rate is 35%. Banners debt is comprised of semiannual bonds with face value of $1,000, that mature in 10 years, with a coupon rate of 14%, selling for $1,000. (Calculations must be shown for credit.)

a. If the firm is analyzing a project from a division with a beta of 1.19, what is the appropriate cost of capital for capital budgeting?

b. Which type of financing, debt or equity, costs less for the company? show calculation and explain