Munder Difflin is considering five average-risk projects with the following costs and rates of return. Munder Difflin Cost & Rates of Return Per Project Project Cost Expected Rate of Return 1 $25,000 14.00% 2 $40,000 15.00% 3 $45,000 13.75% 4 $55,000 13.00% 5 $35,000 17.50% The company estimates that it can issue debt at a rate of rd 12%, and its tax rate is 25%. It can issue preferred stock that pays a constant dividend of $6.00 per year at $50.00 per share. Also, its common stock currently sells for $30.00 per share; the next expected dividend, D1, is $3.50, and the dividend is expected to grow at a constant rate of 4% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock. 1. What is the cost of each of the capital components? 2. What is Munder Difflin's WACC? 3. Only projects with expected returns that exceed the WACC will be accepted. Which projects should Munder Difflin accept? What is the dollar amount of Munder Difflin's optimal capital budget?