Road Runner Corporation is considering an expansion of its manufacturing plant. The project would cost $30 million in initial investment but its expected to result in after tax cash flows to the firm of $3.5 million per year for the next 14 years. You have the following information about the firms capital structure and market conditions:

Common stock: 2 million shares outstanding

Current market price is $35 per share

Par value is $1 per share

Beta = 1.2

Bonds: 90,000 bonds outstanding

8% coupon paid semi-annually

8 years to maturity

Selling at 112% of face value

Market conditions The average market return is 12%

Risk free rate is 4%

Tax rate is 32%

1. What is the firms weighted average cost of capital?
2. Using NPV principles, should the firm proceed with this expansion?