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The Alley Inc. recently hired you as a consultant to estimate the company's WACC. You have obtained the following information: (1) The firm's bonds mature in 20 years, have an 8.00% coupon rate (paid quarterly), a par value of $1,000, and a market price of $1,000. (2) The company's tax rate is 40%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock's beta is 1.20. (4) The capital structure consists of 25% debt and the rest is common equity. The firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. (5) The common stock is currently traded at $75 per share while its book value is only $22.5 per share. a/ Should we use book values or market values to calculate the weights of different sources of capital in WACC calculation? (5 points) Briefly explain. b/ What is the firm's WACC? (15 points)