Blue Bayou Inc. is expected to pay a $2.50 dividend at year end (D₁ = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $52.50 a share. The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. Show your work in all calculations.

1- Calculate the company's after-tax cost of debt to be used in determining the WACC.

2- Calculate the company's cost of retained earnings to be used in determining the WACC.

3- Calculate the company's WACC if all the equity used is from retained earnings.