The CFO of Mega Munchies recently received a report that contains the following information:

The WACC is 12 percent if the firm does not have to issue new common equity; if new common equity is needed, the WACC is 15 percent. If Mega Munchies expects to generate $240,000 in retained earnings this year, which project(s) should be purchased? Assume that the projects areindependent.

Transcribed Image Text:

Capital Structure Expected Return Type of Capital Proprtion Debt Preferred stock Common equity 60.0 Project Cost $200,000 19.0% 300,000 17.0 200,000 14.0 40.0% 0.0