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Chrome File Edit View History Bookmarks People Window Help Final X Homework 3 CSecure https:/ccle.ucla.edu/mod/quiz/attempt.php?attempt 2027943&page-17; Homework 4 x , , Sample Final x Net Present Value Calculatorx x UCLA CCLE I Shared System Need Help CHAN, CHINGY My sites 18W-MGMT130A-2 Final Final Control Pan Question 18 Answer saved Points cut of Quiz navigation 14%, the cost of debt is 8% and the company's tax rate Bruin Inc. is vesting in a new project with similar risk profile as its other projects. Considering that the cost of equity is 37%, what is the appropriate discount rate for the project if the debt/equity ratio is 0.5? Select one: 819|10 11 12 13 14 15 16 17 18 19 20 21 22 23 Finish attempt... a. 8.0267% b. 11.0000% . 11013396 d. 9.5200% e. 10.0000% ernave Previous page Next pag O 2018 UC Regents Contact About Privacy Copyright UCLA linksI UCLA Registrar MyUCLA Disability Couns/PsychSve (CA

Explanation / Answer

Ans = c. 11.0133%.

Given Debt to equity ratio of 0.5. This means Debt = 0.5*Equity

Therefore, total assets = Debt + Equity = 0.50Equity + Equity = 1.50Equity

Thus, Debt/Total Assets = 0.5/1.50

& Equity/ Total Assets = 1/1.50

As per WACC, the appropriate Discount rate = Ke*(Equity/Total Assets) + Kd*(1-tax)*(Debt/Total Assets)

= (14*(1/1.5))+((8*(1-0.37))*(0.5/1.5)) = 11.0133%

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