The common stock of a firm has a beta of 1.15. The Treasury bill rate is 3.5%, and the market risk premium is estimated at 7%. Firms capital structure is 40% debt, paying a 6.5% interest rate, and 60% equity. Firm pays tax at 35%.

a. What is the firms cost of equity?

b. What is its WACC?

c. If the firm is presented with an average risk project that has an internal rate of return of 15%, should it accept the project?