Compute the weighted average cost of capital

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Reference no: EM131188260

Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide a return of 11 percent and can be financed at 8 percent with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yield a return of 15 percent but would cost 17 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

Piece of equipment

Reference no: EM131188260

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