Tiger Towers, Inc. is considering an expansion of their existing business, student apartments. The new project will be built on some vacant land that the firm has just contracted to buy. The land cost $$1,000,000$ and the payment is due today. Construction of a $20-$unit office building will cost $$3$ million; this expense will be depreciated straight$-$line over $30$ years to zero salvage value; the pretax value of the land and building in year $30$ will be $$18,000,000.$ The $$3,000,000$ construction cost is to be paid today. The project will not change the risk level of the firm. The firm will lease $20$ office suites at $$20,000$ per suite per year; payment is due at the start of the year; occupancy will begin in one year. Variable cost is $$3,500$ per suite. Fixed costs, excluding depreciation, are $$75,000$ per year. The project will require a $$10,000$ investment in net working capital.

rdebt $=10\mathrm{.}0\%$ rWACC $=11\mathrm{.}20\%$ image

rasset $=15\mathrm{.}0\%$ tax rate $=34\%$

requity $=24\mathrm{.}9\%$ rfree $=2\%$

The firm's tax rate is $34$ percent. The firm's pre$-$tax cost of debt is $8$ percent; the firm's debt$-$to$-$equity ratio is $3$; the risk$-$free rate is $3$ percent; the beta of the firm's common stock is $1\mathrm{.}5$; the market risk premium is $9$ percent.

What is the required return on assets?

Group of answer choices

$33\mathrm{.}33$ percent

$10\mathrm{.}85$ percent

$13\mathrm{.}12$ percent

$16\mathrm{.}5$ percent