Problem 4: Weighted Average Cost of Capital (6 points) Suppose there is no corporate tax. The firm is the same firm in all parts (a,b,c) of this problem. The firm's weighted average cost of capital is 15%. a) (2 points) Suppose that the cost of equity is 25% and the interest rate the firm pays on its debt to investors is 10%. What is the proportion of the firm financed by equity? b) (2 points) Suppose that the firm has 2 projects which result in identical cash flows over time. Project 1 is financed fully by equity while Project 2 is financed by 50% debt and 50% equity. Assuming that both have positive NPV:s and the firm can only invest into one of the projects, will firm invest into Project 1 or Project 2? c) (2 points) Assume that the firm's earnings are $250,000 in year 1 (that is, exactly 1 year from now=time () and the firm will exist forever. In year 2 the earnings will grow by 5%. In year 3 3 the earnings will grow by 10% (so the earnings in year 3 will be 1.05 x 1.10 $250,000). In year 4 the earnings will grow by 5% and so on: the earnings will grow by 5% in all even years and by 10% in all odd years. What is the value of the firm