Question: Stackhouse Industries has a new project, which it plans to finance with a debt-to-value ratio of 0.30. (Assume beta of debt = 0.) The companies

  1. Stackhouse Industries has a new project, which it plans to finance with a debt-to-value ratio of 0.30. (Assume beta of debt = 0.) The companies with operations comparable to this project have unlevered betas of 1.05, 1.10, and 1.30. The risk free rate is 3.8 percent, and the market risk premium is 7 percent. The company has a tax rate of 34 percent. What is the cost of equity that should be used in calculating the discount rate for the project?

    A.

    11.85%
    B.

    10.8%
    C.

    12.8%
    D.

    14.13%

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