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 & South. The Basic variables surrounding each project analysis and the resulting decision actions are summarized in the following table. Answer A-F

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 Dont Invest

Reason 8%.7% cost 15%,16% cost

A. 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?

B. Another analyst assigned to study the South facility believes that funding for that project will come from the firm