United Airlines is considering adding a new hub operation in Blue Lagoon. The finance group at UAL has gathered the following data. They have hired you as a Finance consultant to help them determine their cost of capital.

• Total Enterprise Value is $2.7 billion
• Current stock sells at $30 per share with 30 million shares outstanding
• Debt was just issued with a 4% coupon (YTM = 4%), but sold at a 2% discount
• UAL pays an annual dividend of $2.20 this year, growing at 3% per year
• The current risk free rate is 2%, UALs Beta is 1.5, the market premium is 7%
• UAL pays a corporate tax rate of 21%

1. What debt and equity weights will United use to calculate WACC?
2. What is Uniteds cost of debt?
3. What is Uniteds cost of common equity?
4. What is Uniteds WACC?
5. Under what circumstances would it make sense for United to make the investment if it returns less than their cost of capital (WACC)?