P$9-1$ Concept of cost of capital and WACC Creek Manufacturing is in the process of

analyzing its investment decision$-$making procedures. Two projects, namely Nord

and Lucas, evaluated by the firm recently involved building new facilities in different

regions of Germany. The basic variables surrounding each project analysis and the

resulting decision actions are summarized in the following table.

a$.$ An analyst evaluating Project Nord expects that the project will be financed by

debt that costs the firm $8\%.$ What recommendation do you think this analyst

will make regarding the investment opportunity?

b$.$ Another analyst assigned to study Project Lucas believes that funding for that

project will come from the firm's retained earnings at a cost of $17\%.$ What rec$-$

ommendation do you expect this analyst to make regarding the investment?

c$.$ Explain why the decisions in parts a and $b$ may not be in the best interests of the

firm's investors.

d$.$ If the firm maintains a capital structure containing $60\%$ debt and $40\%$ equity,

find its weighted average cost of capital $($WACC$)$ using the data in the table.