Is the company a logical approach to using cost of capital

Reference no: EM13280329

In April 2009 Dr. John's Chiropractic bought a massage machine that provided a return of 8%. It was financed by debt costing 7%. In August of 2009, Dr. John came up with a heating compound that would have a return of 14%. The Chief Financial Officer, Mrs. John, told him it was impractical because it would require the issuance of common stock at a cost of 16% to finance the purchase of equipment to produce the compound. Is the company following a logical approach to using cost of capital?

Reference no: EM13280329

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