You are provided the following information:

Capital Structure:

Debt $ 60000

Equity $ 180000

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.

The shares trade at $ 20; the growth rate is 6%. Dividends paid last year - $ 1.00.

The firm has a 30% tax rate.

Kemper, Goebel & Benkato, Investment Bankers have informed you that new shares can be sold with a 10% transaction cost.

New 50 year bonds can be sold. The firm can collect:

$ 0 -- $ 120000 6%

The firm added $ 180000 to retained earnings last year.

As the intern, compute the cost of capital {WACC} for the CFO.

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.