Question 2: Baker Labs has total assets of 400 million. 100 million is Long Term Debt (Bonds), 100 million is Preferred Stock and the rest are finance by Common Stock equity. The After Tax-Cost of Debt is 11.96%. Their preferred stocks give a dividend of 9%, have a par value of 100 and are sold in the market for 70. Therefore, the cost of preferred stock is 12.85%. Additional $3 per share also has to be paid for floatation. The company wishes to calculate cost of common stock equity by using these data- The risk-free rate 5.5 percent, market risk premium 5 percent and the stock's beta 1.4. Instructions: (5 marks) a) Calculate the weighted Average Cost of Capital for Baker. b) How does WACC help in investment decision making