Question

TLC corp. uses the hurdle rate method of capital budgeting. It has estimated that the following project has an asset beta of 1.2, the expected return on the market is 12%, and the risk-free rate is 5%. TLC expects to finance the project with debt so that the project’s target D/E ratio is 0.30. The interest rate on the new debt is 7% and TLC faces a 21% marginal tax rate. What IRR will the project need to exceed if TLC is to undertake the project?

Answer 1