Blue Mountain Company has 10,000 bonds outstanding that are selling at 95% of par value ($1000). Bonds with similar characteristics are yielding 6%. The company also has 100,000 shares of preferred stock outstanding and pays $5 as annual dividend on their preferred stock. The company has 200,000 shares of common stock outstanding. The preferred stock sells for $50 per share. The common stock has a beta of 1.5 and sells for $40 a share. The risk-free rate is 3% and the return on the market is 12%. The corporate tax rate is 34%.

1. a) What is your best estimate for Blue Mountains weighted average cost of capital (WACC)? (Round to three decimal places).

2. b) If Blue Mountain is analysing a new project which requires an initial cash outlay of $3000,000 for new equipment. The flotation costs are 4% for debt, 6% for preferred stock, and 8% for common stock. What is the initial cost of the project including the flotation costs?