Mini-Case cost of Capital and Project Risk shares of common stock outstanding that trade at a price ing that per share. also has 500,000 bonds outstand- currently trade at $923.38 each. CWC has no pre- stock outstanding and has an equity beta of The risk-free rate is 3.5%, and the market is expected to retum 12.52%. he firm's bonds have a 20-year a ar value, a 10% coupon rate, and pay interest semiannually cwC is considering adding to its product mix a healthy bottled water geared toward children. The initial outlay for the project is expected to be $3,000,000, which will be de- preciated using the straight-line method to a zero salvage value, and sales are expected to be l,250,000 units per year at a price of $1.25 per unit. Variable costs are estimated to be $0.24 per unit, and fixed costs of the project are esti- mated at $200,000 per year. The project is expected to have a 3-year life and a terminal value (excluding the op- eratin tax cash flows in year 3) of $500,000. Cwo has a 34% rate. For the purposes of this project, working capital effects will be ignored. Bottled water targeted at children expected to have different risk characteristics from the S use cument products. Therefore, CWC has decided to the pure play" approach to evaluate this project. After