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ABC Inc. is evaluating a project. The ABC intends to use 30% debt in funding the project. ABC identifies 5 comparable companies with the following

ABC Inc. is evaluating a project. The ABC intends to use 30% debt in funding the project. ABC identifies 5 comparable companies with the following equity betas and debt/equity ratios. While the comparable companies have varying marginal tax rates ABCs marginal tax rate is 32%. The current ten year treausy rate is 2.5% and the market return (Rm) is estimated to be about 8.5%. The yield on the company's corporate bonds is 4%

Company

Equity Beta

D/E Ratio

Marginal Tax Rate

A

1.38

0.25

25%

B

1.65

0.55

30%

C

2.11

0.75

35%

D

1.54

0.50

30%

E

1.83

0.60

30%

The weighted average cost of capital is closest to ____.

Group of answer choices

10.80%

7.95%

13.20%

No of the answer choices is correct

9.6%

11.10%

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