Use the Information for the Question(s)below

question 59

Multiple Choice

Use the information for the question(s) below.
KT Enterprises is considering undertaking a new project.Based upon analysis of firms with similar projects,KT has determined that an unlevered cost of equity of 12% is suitable for their project.KT's corporate tax rate is 21%,its borrowing rate is 7%,and KT does not believe that its borrowing rate will change if the new project is accepted.
-If KT expects to maintain a debt to equity ratio for this project of 1,then KT's equity cost of capital,rE,for this project is closest to:

• A)17.0%.
• B)5.0%.
• C)15.0%.
• D)12%.

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Definitions:

Base-case Analysis

An evaluation technique in which the projected performance of a project is calculated under a set of assumptions considered most likely or average.

Sensitivity Analysis

A method employed to ascertain the impact of varying independent variable values on a specific dependent variable, based on certain assumptions.

Scenario Analysis

A process of analyzing possible future events by considering alternative possible outcomes.

Competitive Analysis

The process of evaluating the strengths and weaknesses of competitors within the same market to develop strategic advantages.