Phils is a sit-down restaurant that specializes in home-cooked meals. Theresas is a walk- in deli that specializes in specialty soups and sandwiches. Both firms are currently considering expanding their operations during the summer months by offering pre-wrapped doughnuts, sandwiches, and wraps at a local beach. Phils currently has a WACC of 14% while Theresas WACC is 10%.

The expansion project has a projected net present value of 12,600 at a 10% discount rate and a net present value of -2,080 at a 14% discount rate.

(b) Phils is a subsidiary of Greggs. The parent company - Greggs maintains a debt-equity ratio of 0.65 and has a tax rate of 32%. The pre-tax cost of debt is 9.8%. There are 25,000 shares of equity outstanding with a beta of 1.2 and a market price of 19 a share. The market has a 12.1% rate of return, and the current risk-free rate is 3.6%. This year, the firm paid an annual dividend of 1.10 a share and expects to increase that amount by 2% each year. Using an average expected cost of equity, what is Greggs weighted average cost of capital?