. Wren Manufacturing is in the process of analyzing its investment dec

QUESTION

. Wren Manufacturing is in the process of analyzing its investment decision-making procedures. The two projects evaluated by the firm during the past months were Project 263 and 264. The basis variables surrounding each project analysis, using the IRR decision technique, and the resulting decision a
A) The firms decision-making procedures are not ideal because they consider financing for each project independent of the firms overall financing. So to accept project 263 will destroy wealth whereas rejecting project 264 is a missed opportunity to create wealth. B) Weighted average cost of capital (WACC) = Wd * Rd We * Re = 0.40 * 7% 0.6* 16% = 2.8% 9.6% = 12.4% C) If the firm had used the WACC they would have rejected project 263 and accepted 264. D) The findings are direct

tes. Using the WACC method is more appropriate since it is the firms overall cost of capital and not just the individual projects cost of capital. The firm in this case has cheaper overall financing than for project 264 making the project profitable whereas their overall cost would make project 263 a non-profitable project.

ANSWER:

CLICK REQUEST FOR  AN EXPERT SOLUTION