BlantyreColtdisatoymanufacturerwhoseequity:debtratiois5:2.Thecorporatedebt, which is assumed to be risk-free, has a gross redemption yield of 11%. The beta value of the company's equity is 1.1. The average return on the stock market is 16%. The corporation tax rate is 30%.

The company is considering a confectionery manufacturing project. The Blue Line ltd isa confectionery manufacturing company. It has an equity beta of 1.59 and an equity:debt ratio of 2:1. Blantyre Co ltd maintains its existing capital structure after the implementation of the new project.

Required:

What would be a suitable risk adjusted cost of equity to apply to the project?

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