Compute the weighted average cost of capital

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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 14 percent return but would cost 16 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.)

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

Royal Jewelers Inc. has an aftertax cost of debt of 8.00 percent. With a tax rate of 40 percent, what can you assume the yield on the debt is? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Reference no: EM131992897

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