You are employed by Vivo Fine Arts & Design Co. You are on the corporate staff as an assistant to the CFO. This is a position with high visibility and the opportunity for rapid advancement, providing you make the right decisions. Your manager has asked you to estimate the WACC for the company. The balance sheet and some other information below.

Assets
Current Assests Net plant, property, and Equipment	$38,000,000 $101,000,000
Total Assets	$139,000,000
Liabilities and Equity
Account payable	$10,000,000
Accurals	$9,000,000
Current liabilities	$19,000,000
Long term debt (40,000 bonds, $1000 par value)	$40,000,000
Total Liabilities	$59,000,000
Comman Stock (10,000,000 shares)	$30,000,000
Retained Earnings	$50,000,000
Total shareholder's equity	$80,000,000
Total liabilities and shareholders' equity	$139,000,000

You check The Wall Street Journal and see that Vivo stock is currently selling for $7.50 per share and share that Vivo bonds are selling for $875.00 per bond. The bonds have a $1,000 par value, a 7.25% annual coupon rate, semi-annual payments, a 20-year maturity, and are not callable.

Vivo's beta is 1.25, and the yield on a 20-year Treasury bond is 5.50%. The expected return on the stock market is 11.50%, but the market has had an average annual return of 14.50% during the past 5 years. Vivo is in the 40% tax bracket.

a. What is your best estimate of the after-tax cost of debt for Vivo?

b. Using the CAPM approach, what is the best estimate of the cost of equity for Vivo?

c. What is the best estimate for the weights to be used when calculating Vivo's WACC?

d. What is the best estimate of the WACC for Vivo?