Managers from different departments in Zenith Trading, a large multinational corporation, have offered six projects for consideration

Question:

Managers from different departments in Zenith Trading, a large multinational corporation, have offered six projects for consideration by the corporate office. A staff member for the chief financial officer used key words to identify the projects and then listed them in order of projected rate of return as shown below. If the company wants to grow rapidly through high leverage and uses only 10% equity financing that has a cost of equity capital of 9% and 90% debt financing with a cost of debt capital of 16%, which projects should the company undertake?

Projected ROR,

Project ID % per year

Inventory ..............30

Technology ...........28.4

Warehouse ...........19

Products ...............13.1

Energy .................. 9.6

Shipping ............... 8.2

Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...