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Gnomes R Us is considering a new project. The company has a debt-equity ratio of .87. The company's cost of equity is 14.7 percent, and
Gnomes R Us is considering a new project. The company has a debt-equity ratio of .87. The company's cost of equity is 14.7 percent, and the aftertax cost of debt is 8 percent. The firm feels that the project is riskier than the company as a whole and that it should use an adjustment factor of +4 percent.
a.What is the company's WACC?
b.What discount rate should the firm use for the project?
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