KT Enterprises is considering undertaking a new project. Based upon the analysis of firms with similar projects, KT has determined that an unlevered cost of equity of 12% is suitable for their project. KT's marginal tax rate is 35%, its borrowing rate is 7%, and KT does not believe that its borrowing rate will change if the new project is accepted. If KT expects to maintain a debt to equity ratio for this project of .6 then KT's equity cost of capital, rE, for this project is closest to: A. 5.0% B.12% C.15.0% D. 17.0%
KT Enterprises is considering undertaking a new project. Based upon the analysis of firms with similar projects, KT has determined that an unlevered cost of equity of 12% is suitable for their project. KT's marginal tax rate is 35%, its borrowing rate is 7%, and KT does not believe that its borrowing rate will change if the new project is accepted. If KT expects to maintain a debt to equity ratio for this project of .6 then KT's equity cost of capital, rE, for this project is closest to: A. 5.0% B.12% C.15.0% D. 17.0%
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 21P: Your division is considering two investment projects, each of which requires an up-front expenditure...
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KT Enterprises is considering undertaking a new project. Based upon the analysis of firms with similar projects, KT has determined that an unlevered cost of equity of 12% is suitable for their project. KT's marginal tax rate is 35%, its borrowing rate is 7%, and KT does not believe that its borrowing rate will change if the new project is accepted.
If KT expects to maintain a debt to equity ratio for this project of .6 then KT's equity cost of capital, rE, for this project is closest to:
A. 5.0%
B.12%
C.15.0%
D. 17.0%
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