Estimate cost of capital you would use in a project analysis

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Reference no: EM131480898

Question: Solitaire Books is a publishing company that is considering expanding into educational services. Solitaire Books has a levered beta of 0.80 and a debt to capital ratio (D/(D+E)) of 20%. the unlevered beta for educational service companies is 1.10 and Solitaire plans to use its existing debt ration in funding the business. Solitaire's effective tax rate is 30% but the marginal tax rate is 40%. Solitaire is rated A, and the default spread for A rated firms is 2%. Estimate the cost of capital you would use in doing a project analysis of the educational service investment. (You can assume that the riskfree rate is 4% and the market risk premium is 4.82%).

Reference no: EM131480898

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