In March 2010, Hertz Pain Relievers bought a massage machine that provided a return of 8 percent.

Question:

In March 2010, Hertz Pain Relievers bought a massage machine that provided a return of 8 percent. It was financed by debt costing 7 percent. In August 2010, Mr. Hertz came up with a heating compound that would have a return of 14 percent.
The Chief Financial Officer, Mr. Smith, told him it was impractical because it would require the issuance of at a cost of 16 percent to finance the purchase. Is the company following a logical approach to using its cost of capital?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...