(DWisional costs of eapital and ievestivent decisions) in May of this year, Newcastle Mlg. Compary's capital investment review committes received two major investinent peoposais. One of the propesals was put forth by the firm's domestic manutacturing division, and the other came from the firm's disirbubicn company. Both proposais promise a return on invesied capial to appraximatidy 12 percent. In the past, Newcastle hes used a single firm-wide coat of capital to evaliate new invesimenta. However, managers have long recognized thet the manufacturing division is significantly more ribky than the datribution divisice. In fact, comparabie firms in the manufacturing division have equity to be sure that it is taking on the more promising investment. Given the importance of geting the cont of cacital estmate as close to correct as posisibie, the firaris cinef fonancial offcee has asked yoe to prepare cost of capital estimates for each of the two divisians. The recuinite information needed to acconicita your tank folown: - The cost of debt francing is 7 percent before a marginal tax rate of 21 percent. You may assume this cost of debt is after ary flotation costs tha fem might incur - The riak-tree rate of interest on long term U.S. Treasury bondis is currently 6.4 percent, and the markot-hikk premim has averaged 3.8 percent over the past teverai years - Both divisions adhere to targot debt ratios of 70 percent. - The firm has suffcient internally generated funds nuch that no new stock wit have to be sold to raise equily finaneirg a. Eatimate the divisional coots of capital for the manufacturing and distribution divitions. b. Which of the two projects should the firm undertake (assuming it cannot de both due to labor and other nonfinancial restrainta)? Discuss