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Canyon Buff Corp. is planning to invest in a new medicine for diabetes. XBiotech Inc is a firm that specializes in this business. XBiotech has
Canyon Buff Corp. is planning to invest in a new medicine for diabetes. XBiotech Inc is a firm that specializes in this business. XBiotech has a stock price of $25 per share with 16 million shares outstanding. XBiotechs equity beta is 1.18. It also has $220 million in debt outstanding with a debt beta of 0.08. Suppose your firm's project is all-equity financed, if the risk-free rate is 2%, and the market risk premium is 6%, then your estimate of the projects cost of capital is closest to:
A. | 7.50% | |
B. | 7.75% | |
C. | 6.75% | |
D. | 10.10% |
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