Firm A wants to invest in a new project, which will be financed with 35% debt at 6% interest rate .

The project is in a new line of business, which differs from the main operation of the firm.

There is only one firm B in the new line of business, which has 55% debt, cost of debt of 9% and cost of Equity is 20.0% .

Tax rate for both firms is 36% . 1. From firm B's information, using MM proposition II, find out its all-equity version cost of equity?

.2 Using MM proposition II and WACC, find out the discount rate for the firm A's project.