Grainger and Company has an opportunity to invest $500,000 in a new line of direct-drive rotary screw

Question:

Grainger and Company has an opportunity to invest $500,000 in a new line of direct-drive rotary screw compressors. Financing will be equally split between common stock ($250,000) and a loan with an 8% after-tax interest rate. The estimated annual NCF after taxes is $48,000 for the next 7 years. The effective tax rate is 50%. Grainger uses the capital asset pricing model for evaluation of its common stock. Recent analysis shows that it has a volatility rating of 0.95 and is paying a premium of 5% above a safe return on its common stock. Nationally, the safest investment is currently paying 3% per year. Is the investment financially attractive if Grainger uses as the MARR its

(a) Equity cost of capital

(b) WACC?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other... Capital Asset Pricing Model
The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. The CAPM is a model for pricing an individual security or portfolio. For individual securities, we make use of the security market line (SML) and its...