Question

The NuPress Valet Co. has an improved version of its hotel stand. The investment cost is expected to be $72 million and will return $13.5 million for 5 years in net cash flows. The ratio of debt to equity is 1 to 1. The cost of equity is 13%, the cost of debt is 9%, and the tax rate is 34%. The appropriate discount rate, assuming average risk, is:

	9%
	9.47%
	8.65%
	13%
	10.5%

Answer 1

Answer: c

Feedback: WACC = .09(1-.34)(.5) + .13(.5) = .0297 + .065 = .0947 = 9.47%