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A company has 60% debt and 40% equity in its capital structure. The after tax interest rate on debt is 6% and required return of
A company has 60% debt and 40% equity in its capital structure. The after tax interest rate on debt is 6% and required return of stockholders is 15%. The company has an investment opportunity with an IRR of 12%. Should the company accept this opportunity? Select one: a. Yes, as the IRR of 12% is higher than the cost of debt of 6% b. Yes, because cost of capital of 9.6% is lower than IRR of 12% c. It is impossible to determine d. No, as the required return of shareholders (15%) is higher than the IRR (12%) * e. No, as cost of capital of 12.6% is higher than IRR of 12%
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