Burning Ltd. currently has the following financing outstanding.

Bond: 10,000 10-year zero coupon bonds with a quoted price of $500 (par value is $1000).

Common Stock: 50,000 shares of common stock. The company just paid $2 per share dividends to its investors. The dividends are expected to be constant in the future. The beta of the stock is 1.1.

The company is considering a new project which has the similar risk as the existing business. The market portfolios expected return is 10%, and the risk-free rate is 2%. The tax rate is 40%.

Required:

1. What is the cost of equity?
2. What is the cost of debt before tax?
3. c. What is the discount rate for the new project?