Casper's is analyzing a proposed expansion project that is as risky as the firm's current operations. the proposed project has an inital cost of $181 million. Management estimates the facility will generate cash inflows of $2.46 million a year over its 20 year life.

The company has 58,000 shares of common stock outstanding at a market price of $52 a share. The stock just paid an annual dividend of $2.84 a share. The dividend is expected to increase by 3.6 percent annually. The firm also has 15,000 shares of 9 percent preferred stock with a market value of $87 a share. The preffered stock has a par value of $100. The comany has $1.2 million of face value bonds with semi-annual payments and a coupon rate of 9e percent. The bonds are currently priced at 102 percent of face value and has yield to maturity of 8.74 percent. The tax arte is 35 percent.

a) What is the weightd average cost of capital? b)Should the firm pursue the expansion proect at this point? Why or why not?