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Question

WWE is a large conglomerate and is thinking of entering the widget business. You need to find

different

discount rates to find the NPV of the project. Here are is the information you need:

WWE debt-equity ratio = 1:2

WWE's interest rate on borrowings = 8%

Competitor's debt-equity ratio = 3:5

Competitor's interest rate on borrowing = 11%

Competitor's equity beta = 1.8

Corporate tax rate for both firms = 40%

Market risk premium = 6%

Risk-free rate = 5%

What is WWE's cost of levered equity?

A. 15.47%

B. 15.63%

C. 15.87%

D. 16.49%

E. 16.88%

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