Cost of capital (25). Please provide the simple reason of your key decisions.

Today is December 30, 2022.

A US company Aaron Athletics Companys capital structure consists of debt and common stock.

The company uses the CAPM to estimate its cost of common equity.

Aaron Athletics Historic Betas: 1.48

Historical S&P500 Market Return (1990-2022): 10.32%

Historical Financial Times Stock Exchange 100 Index (FTST 100 Index- a share index of the 100 companies listed on the London Stock Exchange) Market return (1990-2022): 9.93%

Historical Aaron Athletics Market Return (1990-2022):12.24%

Currently, Aaron Athletics stock price is $50, with a total number of 3 million shares outstanding.

The current 20-year Treasury bond is 2%

The current average yield for the AAA rating corporate bonds is 5%

The current average yield for the Microsoft corporate bonds is 4%

The companys average effective tax rate is 35%.

Current Yield on publicly trade Aaron Athletics bond which has an AAA rating:

Coupon 7% (paid semi-annually), 10 years to maturity.

Current bond price $94 for the face value of $100

Current value of bond is $94,000,000.

Questions

A.) Find the companys cost of equity (cost of stock).

B.) Find the companys cost of debt.

C.) Find the companys weight of debt, and the weight of equity.

D.) Find the companys WACC.

E.) If the company has a project with an IRR of 15%. Just based on the IRR criterion, do you think the company should accept the project or not? Why?