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 risk-free interest rate in the U.S. rises. Will the change in interest rates increase, decrease, or have no effect on the required rate of return on the project. Briefly explain.