NASA Inc. has 40 million shares outstanding, selling at $20 per share, and a D:E ratio of 1:4. NASAs stock beta is 1.15, its bond rating is AA and following is some income statement data:

EBIT = $150 million

Interest Exp. = $20 million

Taxable Inc. = $130 million

Taxes = $52 million

Net Income = $78 million

The current risk-free rate is 8%, the market risk premium is 5.5% and AAA to AA spread is 2%.

Required:

a) What is the firm's current weighted average cost of capital?

b) The firm is considering to borrow further $200 million of debt to repurchase stock, which will result in its bond rating dropping to A. If the AAA to A spread is 3%, then what will the new stock price and weighted average cost of capital be if the proposal is undertaken?