hard · CFA Level I corp
Solstice Utilities is considering a new project. The firm's current debt is trading at par with a 5.0% yield. However, the firm's investment bankers suggest that new debt issued to fund this specific project will require a 7.0% yield due to its unique risks. For the WACC used to evaluate this project, the cost of debt should be:
- 7.0%, the marginal cost of project-specific debt.
- 6.0%, the average of current and marginal yields.
- 5.0%, the current market yield.
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