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Hot Tamales, a firm with a target debt/equity ratio of 0.8, has an after-tax cost of debt of 7.5%. Equity holders in Hot Tamales have
Hot Tamales, a firm with a target debt/equity ratio of 0.8, has an after-tax cost of debt of 7.5%. Equity holders in Hot Tamales have a required rate of return of 18%. The company is considering investing in a project with the cash flows below. This project is riskier than the average project of the company. To compensate for this, the company adds 2.5 percentage points to their average weighted cost of capital. Should Hot Tamales undertake this project
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