Eastman Chemical Co., a leading international company and maker of plastics, has the following four projects to consider. Assume that all four projects are of average risk.

	Return.
Project A	6.00%
Project B	6.40%
Project C	6.60%
Project D	7.00%

You are an assistant to the CFO and have collected the following data to conduct the analysis.

The company is subjected to a marginal tax rate of 35%.

The company can issue a 20-year, 7.6% semi-annual coupon bond at $1,219. New bonds would be privately placed with no floatation cost.

The companys preferred stock currently sells for $30 per share. It pays a fixed dividend of $1.8 per share.

The companys common stock currently sells for $40 per share. The most recently paid dividend was $1 per share. Dividends are expected to grow at a constant rate of 5% in the foreseeable future.

A flotation cost of 10% would be required to issue new common stock.

The companys stock beta is 1.875, the market risk premium is 3% and the risk-free rate is 2%.

The companys capital structure consists of 30% debt, 5% preferred stock, and 65% common equity.

(2) Calculate the firms WACC, assuming it does not want to issue new common stock. Which projects should the firm select?