Business of internet service to evaluate this new venture

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The Moore, Inc. is a residential and commercial internet service provider. Now it is considering expanding into a new line of business: 3-D printer. Currently, Moore has an effective tax rate of 40% and equity to debt ratio is 1.5. It has a before tax cost of debt of 8%, and its stock has twice as much systematic risk as the market portfolio. The firm has identified a pure play company (Stratasys) whose only business is 3-D printer production. Stratasys has a effective tax rate 30%, a debt to equity ratio of 0.50, a before tax cost of debt of 6%, and its beta is 3. The expected return on the market is 7%, and the risk free rate of interest is 3%. a) Determine the appropriate discount rate (WACC) Moore should use for evaluating new projects within its business of internet service. b) Determine the appropriate discount rate (WACC) Moore should use for evaluating the new venture if the new venture will have an equity to debt ratio similar to that of Moore. c) What would happen if Moore uses the WACC of its business of internet service to evaluate this new venture? Briefly explain

Reference no: EM131012869

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