Logical approach using its cost of capital

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Reference no: EM13122058

Rambo Exterminator Company bought a "Bug Eradicator" in April of 2008 that provided a return of 7 percent. It was financed by debt costing 6 percent. In August, Mr. Rambo came up with an "entire bug colony destroying" device that had a return of 12 percent.

The Chief Financial Officer, Mr. Roach, told him it was impractical because it would require the issuance of common stock at a cost of 13.5 percent to finance the purchase.

Is the company following a logical approach to using its cost of capital?

Reference no: EM13122058

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