Peter, the financial manager of U Ltd., is trying to determine the companys cost of capital.

Currently, there are 10 million shares of common stock and 0.5 million zero coupon bonds outstanding (par value $1,000 each). The stock price is $10 and the bond price is $456. The bonds have 20 years to maturity. The expected return of market portfolio can be estimated using the average historical return (over the past four years). T-bills are yielding 2%. The tax rate is 30%. Given the following historical returns:

Year	U	Market Porfolio
2012	10%	15%
2011	15%	18%
2010	2%	3%
2009	-8%	-10%

What is the historical average return of the market portfolio?

What is the covariance between Us stock return and the Market portfolios return?

What is Us stock beta?

What is Us cost of equity?

What is Us after tax cost of debt?

What is Us WACC?

If the IRR of a typical project in U is 5%, should you suggest accept the project?