The Acrosstown Company has a levered beta of 0.5 and 50% debt in its capital structure. The company has risk-free debt that costs 6% before taxes, and the expected market return is 18%. Acrosstown is considering the acquisition of a project in a new line of business that is expected to yield a return of 25% after taxes. A company in a similar industry to the acquisition has a levered beta of 2.0 and has 10% debt in its capital structure. Assume Acrosstown finances the acquisition with 50% debt and the tax rate is 50%

a. What is the appropriate cost of capital Acrosstown should use to evaluate the project? Show your work.

b. Should the project be accepted? Why?