2. The finance manager suggested that the company could raise these funds from a neighboring country offering the following costs of funds;

	Cost of Equity	Before-tax cost of debt
First $40 million new capital	15%	6%
Subsequent new capital from $41 million onwards	21%	14%

1. Calculate the revised average cost of capital if Alliance would pursue the $40 million gas pipeline expansion project with the same capital structure of 50% debt and 50% equity from the neighboring country. Note that aggregate tax including all miscellaneous foreign fund transfers, local government-imposed tax and so on adds up to 40%. (5 marks)