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Gnomes R Us is considering a new project. The company has a debt-equity ratio of 0.79 The companys cost of equity is 12.15 percent, and

Gnomes R Us is considering a new project. The company has a debt-equity ratio of 0.79 The companys cost of equity is 12.15 percent, and the aftertax cost of debt is 8.85 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.

What discount rate should the firm use for the project?

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