Chicken World (CW) Inc. has a market value of equity of $6 million, and a market value of debt of $4 million. The treasurer estimates that the beta of the stock currently is 1.2 and that the expected risk premium on the market is 10%. The Treasury bill rate is 5%, and investors believe that CWs debt is essentially free of default risk.

a. What is the required rate of return on CW stock?

b. Estimate the WACC assuming a tax rate of 21%.

c. Estimate the discount rate for an expansion of the companys present business.

d. Suppose the company wants to expand into a safer business than its current one. Is the required rate of return on CWs new business higher or lower than its company cost of capital?