MacDouglas is in the process of analyzing its investment decision-making procedures. The two projects evaluated by the firm during the past month were projects P1 and P2. The basic variables surrounding each project analysis and the resulting decision actions are summarized in the following table.

Basic variables P1 P2

Cost 64000 58000

LIFE 15 years 15 years

Expected return 8% 15%

Least cost financing

source Debt Equity

cost ( after tax) 7% 16%

decision

Action Invest Don't invest

15%<16%

reason 8%>7% cost cost

a)How do i evaluate the firm's decision-making procedures, and explain why the acceptance of project P1 and rejection of project P2 may not be in the owners' best interest.

b)If the firm maintains a capital structure containing 40% debt and 60% equity, how do i find its weighted average cost using the data in the table.

c)If the firm had used the weighted average cost calculated in part b, what actions would have been indicated relative to projects P1 and P2?

d)How will i compare and contrast the firm's actions with your findings. Which decision method seems more appropriate? and also explain why.