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Question 2 The Nealon Manufacturing Company is in the midst of negotiations to acquire a plant in Broken Hill, NSW. The company CFO, James Nealon,

Question 2

The Nealon Manufacturing Company is in the midst of negotiations to acquire a plant in Broken Hill, NSW. The

company CFO, James Nealon, is the son of the founder and CEO of the company and heir-apparent to the CEO

position, so he is very concerned about making such a large commitment of money to the new plant. The cost of

the purchase is $40 million, which is roughly half the size of the company today.

To begin his analysis, James has launched the firm's first-ever cost-of-capital estimation. The company's current balance sheet, restated to reflect market values, has been converted to percentages as shown in the table below.

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