QUESTION: Explain why the decisions/answers (below) in (parts a1 and b2) may not be in the best interests of the firms investors?:

Concept of cost of capital Mace Manufacturing is in the process of analyzing its investment decision- making procedures. Two projects evaluated by the firm recently involved building new facilities in different regions, North and South. The basic variables surrounding each project analysis and the resulting decision actions are summarized in the following table asic variables orth South million $5 mill ife Expected return Least-cost financi 15 years 15 years ource ebt Ul st (after-tax) 7% 16% ion nvest tinvest eason 8%, 7% cost 15% , 16% cos a. An analyst evaluting the North facility expects that the project will be financed by debt that costs the firm 7%. What recommendation do you think this analyst will make regarding the investment opportunity? 1) If the project is financed by the company with 7% debt funds then the project will gen erate the profit of the 8 % return every year Particulars Expected Return Less: Cost after Tax Net Saving Per Month Percent 8% 7% 1% Also, the Expected return is more than the cost of capital (0.08> 0.07), it is recommend to take the project. b. Another analyst assigned to study the South facility believes that funding for that project will come from the firm's retained earnings at a cost of 16%. What recommendation do you expect this analyst to make regarding the investment? 2) The project has an expected return of 15 %,hence it is better comparing with loan expense and bank interest on deposits. However, there is an excess amount of the cash in over hands it is better to take this opportunity with mixing the debt funds then only it will give more return. Or if we consider expected return as base, the Expected return is less than the cost of capital (0.15 0.16), it is better to abandon the project