Stark Industries has a capital structure consisting of 60% common stocks and 40% of debt. The firms investment banker has advised the firm that debt issued with a $1.000 par value, 8% coupon (interest paid semiannually), maturing in 20 years can be sold today in the bond market for $1.100. Common stock of the firm is currently selling for $80.000 per share. The firm expects to pay a $2 dividend per year. Dividend have grown at the rate of 8% per year and are expected to continue to do for the foreseeable future. (Use the excel financial calculator to solve this problem)

a) What is Starks weighted average cost of capital where the firm faces a tax rate of 34%?

b) What should be the cost of the debt so that the previously calculated (section a) if WACC is reduced by 20% keeping the rest of the variables constant?