Question: SBB CFF SA is considering a project to start Cargo trains in Swiss Romande. It has a D/E ratio of 2, a marginal tax

SBB CFF SA is considering a project to start Cargo trains in

SBB CFF SA is considering a project to start Cargo trains in Swiss Romande. It has a D/E ratio of 2, a marginal tax rate of 40% and its debt currently has a yield of 14%. Valais CFF a comparable company that operates only in the Cargo train business has a D/E ratio of 1.5, a marginal tax rate of 30% and an equity Beta of 0.9. The risk free rate is 5% and the expected return on the market portfolio is 12%. Compute the appropriate WACC for the project.

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