Home / Questions / The Moore, Inc. is a residential and commercial internet serviceprovider. Now it is consid
The Moore, Inc. is a residential and commercial internet serviceprovider. Now it is considering expanding into a new line ofbusiness: 3-D printer. Currently, Moore has an effective tax rateof 40% and equity to debt ratio is 1.5. It has a before tax cost ofdebt of 8%, and its stock has twice as much systematic risk as themarket portfolio. The firm has identified a pure play company(Stratasys) whose only business is 3-D printer production.Stratasys has a effective tax rate 30%, a debt to equity ratio of0.50, a before tax cost of debt of 6%, and its beta is 3. Theexpected return on the market is 7%, and the risk free rate ofinterest is 3%. a) Determine the appropriate discount rate (WACC)Moore should use for evaluating new projects within its business ofinternet service. b) Determine the appropriate discount rate (WACC)Moore should use for evaluating the new venture if the new venturewill have an equity to debt ratio similar to that of Moore. c) Whatwould happen if Moore uses the WACC of its business of internetservice to evaluate this new venture? Briefly explain
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