XYZ Corporation data: The book value of the stock is $9 million; the market value of the stock is $12 million; the book and market values of its debt is $8 million; its stock beta is 1.2; the market risk premium is 6%; its debt cost is 5% and assumed to be risk-free.

a. What is the company cost of capital?

b. Now XYZ intends to diversify into infrastructure projects with asset beta of 1.0. Estimate the required rate of return on this new venture