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A project manager is trying to ascertain a discounting rate for the project cash flows that...

A project manager is trying to ascertain a discounting rate for the project cash flows that carry the same risk as the core business of the firm. The manager has been told by the finance team at the firm that the current capital structure has a debt to value ratio of 0.3, however, they are targeting a ratio of 0.25 to get a better credit rating. The better credit rating would reduce the cost of debt to 7%. The currentreturn on the firm’s equity is 15% and the current cost of debt is 8%. Whatis an appropriate discountrate forthe project cash flowsifthetax rate is 25%?

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