Percy Motors has a target capital structure of 60% debt and 40% common equity, with no preferred stock. The yield to maturity on the companys outstanding bonds is 9%, and its tax rate is 40%.

a. If Percys cost of equity is 10%, what is Percys WACC? (3 points)

b. Assume that the company issues new common stock sells at $100 and the flotation cost is 8%. The company paid dividend $2 per share for last year and it is expected to grow at 5% per year. What is Percys WACC if equity capital is raised from this new issuing? (5 points)