The Ritz Carlson has a capital structure of 35% debt, 15% preferred stock, and 50% common stock equity. It estimates that it will have $2,500,000 in retained earnings to invest next year. It will only issue new common stock once it has used up its retained earnings.

a. What level of investment will the Ritz Carlson take on before it issues new common stock equity?

b. Calculate WACC for both retained earnings and common stock equity and indicate which The Ritz Carlson would use to evaluate its projects.