QUESTION 5 InterCont is a construction company that plans on purchasing new equipment this year for a new project. The project is expected to return $900,000 per year for the next 5 years. The equipment needed will cost $5,000,000 (900,000/5,000,000 18% return a year). In order to purchase this equipment, InterCont must acquire the necessary funds from several sources. The following list shows the proportion of funds expected from each source, and the rate of interest (or similar cost) that will be required for each source: Bond issuance: Bank loan: Preferred Stock issuance: 30% of total funds, requires 10% interest per year 50% of total funds, requires 15% interest per year 20% of total funds, requires 7% dividend per year InterCont is a very conservative company, and requires a "buffer margin" of 5 percentage points for any large investment project. In other words, a projects rate of return must be more than the WACC plus 5 percentage points. What is InterCont's weighted average cost of capital? Does the proposed project meet the company's required rate of return? TTT Arial : 3 (121) : T.E E