Question: Jack is opening bookstore in Chicago. This will require an initial investment of $2.5M, and will generate a yearly EBIT of $600,000 for 20 years,

Jack is opening bookstore in Chicago. This will require an initial investment of $2.5M, and will generate a yearly EBIT of $600,000 for 20 years, starting one year from today. Another bookstore in Chicago has a debt to equity ratio of 1.4 and a market beta of 1.9. Jack's bookstore is going to have a debt to equity ratio of 0.8. All companies involved can borrow at the riskless rate, which is 1.8%. The corporate tax rate is 35% and the expected return on the S&P500 is 15.5%. What is Jack's weighted average cost of capital ?

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