Question
An analyst evaluating the North facility expects that the project will be financed by debt that costs the firm 7%. What recommendation do you think
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An analyst evaluating the North facility expects that the project will be financed by debt that costs the firm 7%. What recommendation do you think this analyst will make regarding the investment opportunity?
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Another analyst assigned to study the South facility believes that funding for that project will come from the firms retained earnings at a cost of 16%. What recommendation do you expect this analyst to make regarding the investment?
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Explain why the decisions in parts a and b may not be in the best interests of the firms investors.
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If the firm maintains a capital structure containing 40% debt and 60% equity, find its weighted average cost of capital (WACC) using the data in the table.
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If both analysts had used the WACC calculated in part d, what recommendations would they have made regarding the North and South facilities?
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Compare and contrast the analysts initial recommendations with your findings in part e. Which decision method seems more appropriate? Explain why
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