Part 1: A firm has the current liabilities and equity financing on its balance sheet shown below. The firm has taxable income that puts it in a 35% federal tax bracket, and the state in which it operates levies a 4.7% income tax. Compute the firms weighted average cost of capital.

Source		Amount	Interest / RoR		Proportion
Short-term loan		$8,000,000	8.20%		0.08
Long-term loan		$21,000,000	5.50%		0.21
Retained Earnings		$35,000,000	19.50%		0.35
Common stock		$36,000,000	22.50%		0.36

Part 2: The same firm is considering the following projects to improve its production process. If the firm has a capital budget of $1,250,000, which projects should be accepted by the rate of return criteria? What is the firms opportunity cost of capital?

Project	First Cost	Annual Benefit		Life (years)
1	$250,000	$50,000		15
2	$300,000	$70,000		10
3	$125,000	$38,000		5
4	$50,000	$12,500		10
5	$375,000	$107,500		5
6	$200,000	$32,000		20
7	$500,000	$155,000		5

Part 3: From your estimates of the WACC in part 1 and the opportunity cost of capital in part 2, what do you estimate the firms true MARR to be?