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please see attached U.S. Robotics (USR) has a current (and target) capital structure of 70 percent common equity and 30 percent debt. The beta for
please see attached
U.S. Robotics (USR) has a current (and target) capital structure of 70 percent common equity and 30 percent debt. The beta for USR is 0.9. USR is evaluating an investment in a totally new line of business. The new investment has an expected internal rate of return of 10 percent. USR wishes to evaluate this investment proposal. If the investment is made, USR intends to finance the project with the same capital structure as its current business. USR's marginal tax rate is 34 percent. USR has identified three firms that are primarily in the line of business into which USR proposes expanding. Their average beta is 1.2, and their average capital structure is 45 percent common equity and 55 percent debt. The marginal tax rate for these three firms averages 40 percent. The risk-free rate is 5 percent, and the expected market risk premium is 8.1 percent. Should USR undertake the project? Round your answer to one decimal place. % or The project should be accepted for any after-tax cost of debt of -SelectStep by Step Solution
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