The Acrosstown Company has an equity 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 rate of return on the market is 18%. Acrosstown is considering the acquisition of a new project in the peanut-raising agribusiness that is expected to yield 25% on an after-tax operating cash flows. The Carternut Company, which is in the same product line (and risk class) as the project being considered, has an equity beta of 2 and has 10% debt in its capital structure. If Acrosstown finances the new project with 50% debt, should it be accepted or rejected? Assume that the marginal tax rate for both companies is 50%.

a) Find expected return on equity for Caternut using CAPM.

b) Find return on asset for Caternut. (ie CAPM w/ asset beta)

c) Find WACC for the new project.