As

the

CFO of Finance

Rocks (FR) Inc., you are considering building a

book

factory. You

determine that you wi

ll use a D/E ratio of 2 and the

after

-

tax cost of debt is 5%. To get the cost of

equity for the factory you plan to use information from a comparable firm, Accounting N

ot So

Much (ANSM) Inc. The beta on ANSMs stock is 1.2 and its D/E is 1. If the T

-

bond rate is

6%

and M

arket

R

isk

P

remium

is 5.5%. T

he tax rate for FR and ANSM is 40%.

Assume both firms

have no bankruptcy risk and debt beta is zero.

a.

What is the cost of e

quity for the project?

b.

What is the projects WACC?