Johnson Inc. has the following capital structure (all bonds pay semi-annual coupons and have par value of $1,000):

(1) $500,000 short term bank loan that carries an interest of 3%. (2) 3,000 bonds with a 7% coupon rate; a current price quote of 84.555; and 25 years to maturity. (3) 2,000 bonds with an 8% coupon rate; YTM of 9%; and 30 years to maturity. (4) 4,000 preferred stocks with 6% dividend rate; trading at 80% of par; and a par value of $25. (5) 50,000 common shares currently trading at $150; and the beta is 0.9

The risk-free rate is 2% and the market risk premium is 8%. The tax rate is 40%.

a) What is the WACC under the current capital structure?

b) If Johnson plans to recapitalize to a debt-to-equity ratio of 1.2 and only use the 30-year bonds and common shares, what will be the WACC under the new capital structure?

c) Johnson needs to raise $1,000,000 for a new project with the new capital structure. The flotation costs on new debt and equity are 5% and 10% respectively. What will be the total cost of the project if 30% of the equity are financed through retained earnings?