es Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 11 percent return and can be financed at 6 percent with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yield a 9 percent return but would cost 15 percent to finance through common equity. Assume debt and common equity each represents 50 percent of the firm's capital structure. a. Compute the weighted average cost of capital. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Weighted average cost of capital % b. Which project(s) should be accepted? Piece of equipment New machine
es Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 11 percent return and can be financed at 6 percent with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yield a 9 percent return but would cost 15 percent to finance through common equity. Assume debt and common equity each represents 50 percent of the firm's capital structure. a. Compute the weighted average cost of capital. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Weighted average cost of capital % b. Which project(s) should be accepted? Piece of equipment New machine
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 7P
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Transcribed Image Text:es
Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 11 percent return and can be financed at 6
percent with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yield a 9 percent return but
would cost 15 percent to finance through common equity. Assume debt and common equity each represents 50 percent of the firm's
capital structure.
a. Compute the weighted average cost of capital.
Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.
Weighted average cost of capital
%
b. Which project(s) should be accepted?
Piece of equipment
New machine
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