Reference no: EM13293872

Concept of cost of capital Wren Manufacturing is in the process of analyzing its investment decision-making procedures. The two projects evaluated by the firm during the past month were projects 263 and 264. The basic variables surrounding each project analysis and the resulting decision actions are summarized in the following table. Chapter 9 9-1 chart Basic variables Project 263 Project 264 Cost $64,000 $58,000 Life 15 years 15 years Expected return 8% 15% Least-cost financing Source Debt Equity Cost (after-tax) 7% 16% Decision Action Invest Don't invest Reason 8%>7% cost 15%<16% cost a. Evaluate the firm's decision-making procedures, and explain why the acceptance of project 263 and rejection of project 264 may not be in the owners' best interest. b. If the firm maintain s a capital structure containing 40% debt and 60% equity, find its weighted average cost using the data in the table. c. If the firm had used the weighted average cost calculated in part b, what actions would have been indicated relative to projects 263 and 264? d. Compare and contrast the firm's actions with your findings in part c. Which decision method seems more appropriate? Explain why.