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Part a. a business is raising money for a new project. It is looking to raise $48 million via bonds. The planned bond has an 8.8% semi-annual coupon, $1000 par value, and a 17-year to maturity. After the fee paid to the investment bank, the business will receive $975 for each bond.

What is the cost of debt for the new project? (10 points)

Part b. last year, the businesss earnings report posted $4.4 EPS and the business paid a $1.6 dividend for each share. The ROE is 12%. Assume the retention ratio would stay the same for the next few years. What is the growth rate for the businesss common stock?

Part c. Assume the businesss dividend will grow at the fixed rate as last year (last part) in the future, and the current market value of stock is $48. Find the cost of common stock?

Part d. a $78 million project is in evaluation, and the management decides to use both debt and common stocks to fund the project. After bonds are issued, the remaining balance of the $78 million capital budget will be financed with retained earnings (retained earnings belong to common stock). The marginal tax rate is 29.5%. Given the information above, what is the weighted average cost of capital for the coming year?

Please note: You will use the WACC at the last question. Please do not leave this question empty, and you have to have an answer here so that you can carry the WACC in question 3.

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