finance-SDS can buy a piece of equipment that is anticipated to provide an 8%

QUESTION

PLEASE SHOW ALL WORKSDS can buy a piece of equipment that is anticipated to provide an 8% return and can be financed at 5% with debt. Later in the year, SDS turns down the opportunity to buy a new machine that would provide a 15% return…but would cost 17% to finance through common equity. Assume the firm’s capital structure is 50% debt, 50% common equity. A – Compute the firm’s weighted average cost of capital B – Did the firm make “good” decisions?

ANSWER:

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