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Company A Company B Market Value of Equity $350,000 $150,000 Market Value of Debt $100,000 $150,000 Cost of Equity 9% 10% Cost of Debt 1.5%

Company A Company B
Market Value of Equity $350,000 $150,000
Market Value of Debt $100,000 $150,000
Cost of Equity 9% 10%
Cost of Debt 1.5% 2%
Tax Rate 30% 25%

Based solely on their current weighted average cost of capital, which company should pursue an investment opportunity with an expected return of 5.5%?

a.)Only Company B.

b.)Neither Company A nor Company B.

c.)Only Company A.

d.)Both Company A and Company B.

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