Cost of debt as a discount rate *** am I wrong here ***

CFA Level II
#1

We can improve the project npv by using the after tax cost of debt as the discount rate. if we finance the project with 100% debt, this discount is appropritate

Answer: incorrect statement: “The correct discount rate is the project required rate of return”

I don’t get the answer…

lets assume the cost of debt is 5% and taxes are 30

wouldn’t you want to discount the cash flows by the after tax cost of debt 5%???

this way… cash flows are after tax and discount rate is after tax???

#2

Is there more to this question or was that it?

#3

Is there any Project Specific risk factor is given .

#4

****** SORRY GUYS!!! MY ORIGINAL ANSWER WAS CORRECT****

_We can improve the project npv by using the after tax cost of debt as the discount rate. if we finance the project with 100% debt, this discount is appropritate THIS IS A CORRECT STATEMENT _

_ SORRY FOR THE CONFUSIONG! _