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2. The Company ABC needs to estimate a cost of capital for a new investment project. Since the project is not in the company's current
2. The Company ABC needs to estimate a cost of capital for a new investment project. Since the project is not in the company's current line of business, the financial analyst at ABC gathers the following pure play data. Bd Debt-to-equity ratio(D/E) Tax rate(t) Co. #1 1.20 0.35 1.00 0.30 Co. #2 1.60 0.65 1.50 0.25 Company ABC's tax rate is 30% and it targets a debt-to-equity ratio of 1.25 for its new investment project. The financial analyst estimates that the risk-free rate is 3% and the market risk premium is 6.5%. Compute an estimate of the cost of capital for Company's new project
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