FunEd is considering adding a new educational toy to its product mix and needs to estimate a discount rate for project analysis. The financial manager of FunEd is evaluating the following information. The book value of FunEds debt is $300 million and the book value of equity is $200 million. Debt matures in 7 years and pays a 6% coupon annually. It currently trades at $849 per bond. The face value of the bond is $1,000. The par value of common stock is $1, and its current price is $20 per share. The common stock of FunEd has a beta of 0.80. The risk-free rate is 3%, and the market risk premium is 8%. The company pays taxes at 40% rate.

a) What is the companys pre-tax cost of debt? b) What is the companys after-tax cost of debt? c) What is the companys cost of equity? d) What is the companys weighted average cost of capital (WACC)? e) If the new project has the same risk as the existing company, what discount rate should the company use in projects NPV analysis?

Please give a detailed solution with all formulas used. No excel pictures

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