ABC Inc. is evaluating a project. The ABC intends to use 20% debt in funding the project. ABC identifies 5 comparable companies with the following “equity betas” and “debt/equity” ratios. While the comparable companies have varying marginal tax rates, ABC’s marginal tax rate is 25%. The current risk free rate prevailing in the market is 3% and the market return is estimated to be about 8.5%

Company	Equity Beta	D/E Ratio	Marginal Tax Rate
A	1.38	0.25	25%
B	1.65	0.55	30%
C	2.11	0.75	35%
D	1.54	0.50	30%
E	1.83	0.60	30%

ABC’s cost of capital is closest to ____.

Answer rating: 100% (QA)

Assuming cost of debt as ... View the full answer