Question
Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 11 percent return and can be financed at 6 percent
Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 11 percent return and can be financed at 6 percent with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yield a 9 percent return but would cost 15 percent to finance through common equity. Assume debt and common equity each represent 50 percent of the firms capital structure.
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Compute the weighted average cost of capital. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
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Which project(s) should be accepted?
A. 10.50% (+/-1%) Piece of equipment
B. 61.50% (+/-1%) Piece of equipment
C. 34.50% (+/-1%) New machine
D. 23.01% (+/-1%) New machine
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