Question
Over-the-Top Canopies (OTC) is evaluating two independent investments. Project S costs $145,000 and has an IRR equal to 10 percent, and Project L costs $135,000
Over-the-Top Canopies (OTC) is evaluating two independent investments. Project S costs $145,000 and has an IRR equal to 10 percent, and Project L costs $135,000 and has an IRR equal to 9 percent. OTC's capital structure consists of 20 percent debt and 80 percent common equity, and its component costs of capital are rdT = 5%, rs = 7%, and re = 8.5%. If OTC expects to generate $210,000 in retained earnings this year, which project(s) should be purchased? Round your answers to one decimal place.
Project | WACC | Acceptable? |
S | % | -Select-YesNoItem 2 |
L | % | -Select-YesNoItem 4 |
Thus, (only Project S,only Project L, both projects, neither project) Item 5 should be purchased.
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