Medical Associates is a large for-profit group practice. Its dividends are expected to grow at a constant rate of 7% per year. The firms last dividend was $2.00, and its current stock price is $23. The firms beta is 1.6; the rate of return on 20-year T-bonds currently is 9%; and the expected rate of return on the market is 13%. The firms target capital structure calls for 50% debt financing, the interest required on new debt is 10%, and its tax rate is 40%. Answer the following questions using the above data.

a) What is the cost of equity estimate according to the CAPM? (Enter your answer as XX.X)

b) Suppose the cost of equity is 15.8%. What is your estimate for the firms corporate cost of capital? (Enter your answer as XX.X.)