You were hired to evaluate BB Inc's expansion project. The firm's common stock has a beta of .95. The risk-free rate is 2.7 percent and the expected return on the market is 10 percent. The before-tax cost of debt is 7 percent, and the tax rate is 40 percent. Their target capital structure consists of 60 percent debt and 40 percent common equity.

1. What is the company's WACC? Show all your work.
2. The company is expanding and the IRR of the expansion project is 8 percent. Should the project be accepted or rejected? why? Explain.
3. Do you expect the expansion decision to change if the risk free rate rises to 3.5%? Why or why not? Explain.

Show all your work. Explain all your answers using the appropriate equations. Your explanation determines your grade