Concept of cost of capital Mace Manufacturing is in the process of analyzing its

investment decision-making procedures. Two projects evaluated by the firm recently

involved building new facilities in different regions, North and South. The basic

variables surrounding each project analysis and the resulting decision actions are

summarized in the following table.

Basic variables North South

Cost $6 million $5 million

Life 15 years 15 years

Expected return 8% 15%

Least-cost financing

Source Debt Equity

Cost (after-tax) 7% 16%

Decision

Action Invest Don