1. You company is considering investing in a new line of toilets financed with all equity. You have identified a company, CupCo, which makes similar toilets. CupCo has 10 million shares of equity outstanding, trading at $74 per share, with an equity beta of 1.6. CupCo has debt worth $40 million with a debt cost of capital of 2.5%. Assume the CAPM holds and that the risk-free rate is 2% and the expected return on the market is 6%. Assume no taxes.

a. What discount rate should you use in calculating the NPV of your new line of toilets?

Enter your answer as a decimal (not as a percent) rounded to four (4) decimal places, e.g. 0.0555 or 0.1111 (do not enter as 5.55% or 11.11%).

Discount Rate =

b. What isthe beta on CupCo's debt?

Enter your answer rounded to two (2) decimal places, e.g. 555.55 or 11.11.

Debt=