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A company operates a security department. The security department has just proposed a project that...

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Finance

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A company operates a security department. The security department has just proposed a project that is in its existing business. The company has a before tax cost of debt of 6%, and an effective tax rate of 40%. The company's capital structure consists of D/E ratio of 0.26. Assume the new project will have a debt-to-equity ratio similar to that of the company. The company has established a pureplay company, Safeland whose only business is security. Safeland has a before tax cost of debt of 8%, a debt-to-equity ratio of 1.2, an effective of tax rate of 35%, and its beta is 5. The market risk premium is 4% and the risk-free rate of interest is 3%. Determine the appropriate discount rate (WACC) that this company should use for evaluating new projects within its security division

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