Bernice Mountaindog was glad to be back at Sea Shore Salt. Employees were treated well. When she had asked a year ago for a leave of absence to complete her degree in finance, top management promptly agreed. When she returned with an honors degree, she was promoted from administrative assistant $($she had been secretary to Joe$-$Bob Brinepool, the president$)$ to treasury analyst.

Bernice thought the company's prospects were good. Sure, table salt was a mature business, but Sea Shore Salt had grown steadily at the expense of its less$-$well$-$known competitors. The company's brand natie was an important advantage, despite the difficulty most customers had in pronouncing it rapidly.

Bernice started work on January $2,2021.$ The first $2$ weeks went smoothly. Then Mr$.$ Brinepool's cost of capital memo $($see Figure $13\mathrm{.}2)$ assigned her to explain Sea Shore Salt's weighted$-$average cost of capital to other managers. The memo came as a surprise to Bernice, so she stayed late to prepare for the questions that would surely come the next day.

Page $418$

FIGURE $13\mathrm{.}2$ Mr$.$ Brinepool's cost of capital memo.

Sea Shore Salt Company

Spring Vacation Beach, Florida

CONFIDENTIAL MEMORANDUM

$\backslash$table$[[$DATE:$,$January $15,2021],[$TO:$,$S$.$S$.$S$.$ Management$],[$FROM:$,$Joe$-$Bob Brinepool, President$],[$SUBJECT:$,$Cost of Capital$]]$

This memo states and clarifies our company's long$-$standing policy regarding hurdle rates for capital investment decisions. There have been many recent questions, and some evident confusion, on this matter.