Gnomes R Us is considering a new project. The company has a debt-equity ratio of .40. The

Question:

Gnomes R Us is considering a new project. The company has a debt-equity ratio of .40. The company’s cost of equity is 13.50 percent, and the aftertax cost of debt is 6.25 percent. The firm feels that the project is riskier than the company as a whole and that is it should use an adjustment factor of +3 percent. What is the WACC it should use for the project?

Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...