Orley Industries is considering a $1 million plant expansion. Management needs to know the average cost of

Question:

Orley Industries is considering a $1 million plant expansion. Management needs to know the average cost of capital to use in evaluating this capital investment decision. The company’s capital structure consists of $2,000,000 of debt at 8 percent interest and $3,000,000 of stockholders’ equity at 12 percent. What is Orley Industries’ average cost of capital?

Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...