Connect Charter, Inc. can buy new software that is anticipated to provide a 12 percent return and can be financed at 7 percent with debt. The firm is also considering buying a new charter bus that would yield a 13 percent return but would cost 15 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.
b. Which project(s) should be accepted?