Estimate the cost of capital of the new project

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Reference no: EM132061247

ABP Inc. is a provider of lumberr and milling equipment and all equity financed firm. Currently, ABP starts a new project which is developing a GPS based inventory tracking system, which will be separate division in ABP. Management views the risk of this investment as similar to that of other technology commpanies investment. You have the following information about the comparable company to the new ABP's technology investment:

Levered comparable company: leverage ratio 20%, average debt bond yield of 10.0%. Equity beta of comparable firm is 0.8, and risk free rate of 2% and a market risk premium of 5%.

Estimate the cost of capital of the new project (using WACC equation)

Reference no: EM132061247

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