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 firm's weighted average cost of capital. Source Short-term loan Long-term loan Retained Earnings Common stock Amount S 6,000,000 $21,000,000 S35,000,000 $32,000,000 Interest/RoR 7.5% 45% 17.0% 22.0% Proportion 0.06 0.22 0.37 0.34 Part 2 The same firm is considering the following projects to improve its production process. If the firm has a capital budget of $1,200,000, which projects should be accepted by the rate of return criteria? What is the firm's opportunity cost of capital? Project First Cost Annual Benefit Life (vears) 1 $175,000 2 $250,000 3 $125,000 4S 75,000 5 $375,000 6 $200,000 7 $500,000 S 45,000 S 62,500 S 40,000 S 16,500 $102,500 S 41,500 $165,000 10 12 10 15