Geomorph Trading has 4.5 million debt and 5.5 million equity. The costs of debt and equity are 7.5% and 15%, respectively. The company has an investment opportunity. The investment project support only 30% debt versus 45% for the company overall (the cost of debt is fixed).(5+5)

1. What is the weighted average cost of capital if the company invests in this project?
2. Suppose its debt and equity betas are 0.15 and 1.4, respectively. The risk-free rate is 6% and the market risk premium is 8%. What is the cost of equity at the new financing weights 30/70 D/E ratio?