Question
Kay Corporation has a marginal cost of capital schedule as follows: Weighted average Cost First $1 million pool of money 12% Second $2 million pool
Kay Corporation has a marginal cost of capital schedule as follows:
Weighted average Cost
First $1 million pool of money 12%
Second $2 million pool of money 13%
Amounts above $3 million 15%
The company is considering the following assets:
Net Present Value at WACC of
Asset Cost IRR 12% 13% 15%
A $1,000,000 17% $400,000 $350,000 $250,000
B 900,000 16 200,000 190,000 150,000
C 600,000 15 200,000 180,000 0
D 500,000 14 100,000 40,000 -50,000
E 500,000 13.8 150,000 60,000 -170,000
F 500,000 13.5 80,000 70,000 -160,000
In which assets should the company invest( in which order)?
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