Compute the weighted average cost of capital

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Reference no: EM131301071

Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 6 percent return and can be financed at 3 percent with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yield a 10 percent return but would cost 12 percent to finance through common equity. Assume debt and common equity each represent 50 percent of the firm’s capital structure.

a. Compute the weighted average cost of capital. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Weighted average cost of capital___%

b. Which project(s) should be accepted? New machine or Piece of equipment?

Reference no: EM131301071

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