Question
CSR has a current (and target) capital structure of 70% common equity and 30% debt. Its betais 1.4. CSR is evaluating an investment in totally
CSR has a current (and target) capital structure of 70% common equity and 30% debt. Its betais 1.4. CSR is evaluating an investment in totally newline of business. The new investment has an expected internal rate of return of 15%. CSR wishes to evaluate this investment proposal. If the investment is made, the firm intends to finance the project with the same capital structure as its current business. CSRs marginal tax rate is 34%. CSR has identified three firms that are primarily in the line of business into which CSR proposes expanding. Their average beta is 1.7, and their average capital structure is 40% common equity and 60% debt. The marginal tax rate for these three firms averages 40%. The risk-free rate is 8%, and the expected market risk premium js 8.3%.Should CSR undertake the project?
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