Interstate Transport Has a Target Capital Structure of 50% Debt

question 1

Multiple Choice

.Interstate Transport has a target capital structure of 50% debt and 50% common equity.The firm is considering a new independent project that has a return of 14% and is not related to transportation.However,a pure-play proxy firm has been identified that has a beta of 1.38.Both firms have a marginal tax rate of 25%,and Interstate's before-tax cost of debt is 12%.The risk-free rate is 10% and the market risk premium is 5%.The firm should:

• A) Be indifferent between accepting or rejecting;the firm's required rate of return on the project equals its expected return.
• B) Accept the project;its return exceeds the risk-free rate and the before-tax cost of debt.
• C) Accept the project;its return is greater than the firm's required rate of return on the project of 12.95%.
• D) Reject the project;its return is less than the firm's required rate of return on the project of 16.9%.
• E) Reject the project;its return is only 14%.

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Definitions:

Skeletal Muscle

A type of striated muscle attached to the skeleton that facilitates movement through contraction.

Smooth Muscle

A type of muscle tissue which is not under voluntary control and is found in the walls of internal organs.

Cardiac Muscle

A specialized type of muscle found only in the heart, characterized by its ability to contract involuntarily and rhythmically.

Neuromuscular Junctions

Specialized synapses between motor neurons and skeletal muscle fibers, crucial for initiating muscle contraction.