A company is considering a new investment. The investment’s cost is expected to be $72 million and will return $13.5 million for 5 years in net cash…

A company is considering a new investment. The investment’s cost is expected to be $72 million and will return $13.5 million for 5 years in net cash flows. The ratio of debt to equity is 1 to 1. The cost of equity is 13%, the cost of debt is 9%, and the tax rate is 34%. Assuming average risk, what’s the appropriate discount rate?

Investment costReturn per yearTerm (Years)Debt-Equity Ratio (1:1)DebtEquityValue of firmCost of equityCost of debtTax RateAppropriate Discount rate $72,000,000$13,500,000511213%9%…