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1) CFO of Mega Munchies of late received report that contained given information:

Project   Cost          IRR
 E         $200,000   19%
 F         $300,000   17%
 G         $200,000   14%

Capital Structure

Type of Capital Proportion
Debt 40%
Preferred Stock 0
Common Equity 60%

Weighted average cost of capital (WACC) is= 12% if firm doesn’t have to issue new common equity; if new common equity is required, WACC is= 15%. If Mega Munchies expects to make $240,000 in retained earnings this year, which project(s) must be purchased? describe why? Suppose the projects are independent.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M915280

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