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The required return on the stock of Moe's Pizza is 12. 5 percent and aftertax required return on the company's debt is 3. 91 percent. The company's market value capital structure consists of 69 percent equity. The company is considering a new project that is less risky than current operations and it feels the risk adjustment factor is minus 1. 8 percent. The tax rate is 35 percent. What is the required return for the new project

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Answer:

The required return on the stock of Moes pizza is 10.4 percent and after tax required return on the company’s debt is 3.28 percent. The company’s market value capital structure consists of 65 percent equity. The company is considering a new project that is less risky than current operations and it feels the risk adjustment factor is minus 1.5 percent. The tax rate is 35 percent.

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