Logical approach to financing

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In 2014, Dr. Payne bought a massage machine that provided a return of 7 percent. It was financed by debt costing 5 percent. In 2015, Dr. Payne came up with a heating compound that would have a return of 14 percent. Dr. Payne’s financial advisor told him it was impractical to develop and market the heating compound because it would require the issuance of common stock at a cost of 15 percent to finance the project. As a result, Dr. Payne stopped development of the heating compound. Is Dr. Payne following a logical approach to financing, given his costs of capital? Explain.

Reference no: EM131054868

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