Problem 4: Sharp Products, Inc. desires to estimate a cost of capital for use in analyzing investments in solar heating. Sharp has hired you to help them compute estimates of the cost of capital. Based upon the size of Sharp's proposed expansion in the solar industry, you plan to use the following two companies to determine a measure of business risk. Proportion of Business BE D/V Company #1 Company #2 1.5 0.40 1.9 0.60 Solar Home Heating Generators 0.40 0.60 0.60 0.40 In addition, you estimate that the market risk premium (M-r) is 8 percent and the risk free rate of interest is 7 percent. Assuming the corporate tax rate is 25 percent (for Sharp, Company #1, and Company #2), the required rate of return on Sharp's debt is 7 percent, and Sharp desires a target leverage ratio of 50 percent, estimate Sharp's weighted-average cost of capital for the solar heating industry.