ECON 2820-Suppose that your company is launching a new project
Suppose that your company is launching a new project. To estimate the cost of capital for the projectyou search the market and find a company that has very similar risk characteristics to the project as follows:Market capitalization, MVE =0millionMarket value of debt, D =$50 millionCost of debt, Rd =5.00%Cost of equity, Re =15.50%Corporate tax rate, t =30%Calculate the cost of capital of the project for the two cases:1) The project is equity financed.2)The project is funded by both debt and equity.
