Adjusting for beta risk in capital budgeting - Debt and equity case The risk-adjusted discount rate approach is widely used to evaluate risk for large projects, especially projects that have different risk profiles. These include projects that are financed with 100% equity and projects financed with both debt and equity. Consider the case of David who works for a company called RADAT Inc. as a financial analyst. He is assigned to work on evaluating a new project. Before David starts to work on the analysis, he collects the following information from within the company: RADAT Inc. is financed with 65% equity and 35% debt. The new project is expected to be financed with 85% equity and 15% debt. The company has a market beta of 0.8. The current risk-free rate is 7%, and the market expects a return of 13.8%. The company pays a tax of 45%. The company's after-tax cost of debt is 9%. David does further research about the project and collects the following information from another company, CompDE Co., which operates exclusively in the same line of business as the new project: CompDE Co. is financed with 80% equity and 20% debt. The company has a market beta of 0.6, and the company pays a tax of 45%. David is expected to calculate the required rate of return on the project. He conducts the analysis in a step-by-step approach. In the table, complete the calculations for each step of the analysis. If the project is expected to generate a return of 8.52%, David is likely to propose the project in his analysis report