23.7
7. Chris at Norwest Financial comes to you with a capital
budgeting problem: Norwest is considering opening a new branch in
South Bend, Indiana because Notre Dame fans fit their customer
profile. The beta for the banking industry is 1.2, the risk-free
rate is 3%, and the expected return on the market is 12%. Norwest's
return on equity is 20%, its return on debt is 8% and its capital
structure is 30% debt. What discount rate should Chris use for
this decision? (5 pts.)
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