Interstate Transport Has a Target Capital Structure of 50% Debt

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%.