Cost of Equity Illinois Co. is a U.S. firm that plans to expand its business overseas. It plans to use all the equity to be obtained in the United States to finance a new project. The project’s cash flows are not affected by U.S. interest rates. Just before Illinois Co. obtains new equity, the U.S. risk-free interest rate rises. Will the change in interest rates increase, decrease, or have no effect on the required rate of return on the project? Briefly explain.
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