You are provided the following information: 1. Capital Structure:

Debt	$60,000
Equity	$180,000

2. The firm sold 50-year, $1000 face value, 5% bonds 10 years ago. These bonds trade at $930. You expect the yield on these bonds to be a good proxy for the cost of issuing new bonds. 3. The shares trade at $20; the growth rate is 6%. Dividends paid last year - $1.00. 4. The firm has a 30% tax rate. 5. Kemper, Goebel & Benkato, Investment Bankers have informed you that new shares can be sold with a 10% transaction cost. 6. New 50-year bonds can be sold. The firm can collect: $ 0 -- $ 120000 6% 7. The firm added $180,000 to retained earnings last year.

Given that you are the intern compute the cost of capital (WACC) for the CFO, and answer the following questions: 1. Compute the WACC. Why do we compute the WACC? 2. How much can you borrow with the amount you have added to retained earnings last year? Note: NO change in capital structure. 3. Compute the WACC if your CFO wants a 'NEW' capital structure with 60% debt (use the old costs). 4. What is the cost of equity when new shares are sold? 5. Compute the WACC if you borrow over $60,001 with the 'OLD' capital structure. 6. The firm has the following projects:

	I	IRR
1	30,000	8%
2	70,000	11%
3	50,000	10%
4	25,000	7%

Help the CFO make a decision.