Firm A plans to finance the project from the following sources:

Debt:

Outstanding bonds of firms of similar risk and maturity as Firm B have an annual coupon of 5.75 percent, paid semiannually, mature in 15 years, and currently sell for $855. The firms marginal tax rate is 21%.

Common Stock:

The most recent dividend on the common shares, D0 was $1.20 and that dividend is expected to grow at 2 percent per year. The expected issue price is $15.00.

Question 1

If Firm A intends to issue 15 year bonds to fund this project, what is the best estimate of the firm's borrowing cost? Answer should be in decimals.

Question 2

The following information reflects market values of Firm As capital structure.

• Assets $54,380
• Debt $20,664

______________ percent of the firm is financed with equity. Answer should be a number (33).

Question 4

Assuming Firm A wants to maintain is current capital structure, estimate the project's weighted average cost of capital.