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%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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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