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Sugar Inc. is considering a project in the candy business. It has a D/ E ratio of 2, a marginal tax rate of 40%, and
Sugar Inc. is considering a project in the candy business. It has a D/ E ratio of 2, a marginal tax rate of 40%, and its debt currently has a rate of return of 14%. Mars Candy, a publicly traded firm that operates only in the candy business, has a D/E ratio of 1.5, a marginal tax rate of 30%, and an equity beta of 0.9. The risk-free rate is 5%, and the expected return on the market portfolio is 12%. Calculate Mars asset beta, the projects equity beta, and the appropriate WACC to use in evaluating the project.
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